[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
MUSIC LICENSING UNDER TITLE 17
(PART I & II)
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
COURTS, INTELLECTUAL PROPERTY,
AND THE INTERNET
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
----------
JUNE 10 AND JUNE 25, 2014
----------
Serial No. 113-105
----------
Printed for the use of the Committee on the Judiciary
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://judiciary.house.gov
MUSIC LICENSING UNDER TITLE 17
(PART I & II)
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
COURTS, INTELLECTUAL PROPERTY,
AND THE INTERNET
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
JUNE 10 AND JUNE 25, 2014
__________
Serial No. 113-105
__________
Printed for the use of the Committee on the Judiciary
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://judiciary.house.gov
______
U.S. GOVERNMENT PRINTING OFFICE
88-240 PDF WASHINGTON : 2014
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COMMITTEE ON THE JUDICIARY
BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin JERROLD NADLER, New York
HOWARD COBLE, North Carolina ROBERT C. ``BOBBY'' SCOTT,
LAMAR SMITH, Texas Virginia
STEVE CHABOT, Ohio ZOE LOFGREN, California
SPENCER BACHUS, Alabama SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa Georgia
TRENT FRANKS, Arizona PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas JUDY CHU, California
JIM JORDAN, Ohio TED DEUTCH, Florida
TED POE, Texas LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah KAREN BASS, California
TOM MARINO, Pennsylvania CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho JOE GARCIA, Florida
BLAKE FARENTHOLD, Texas HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia
RON DeSANTIS, Florida
JASON T. SMITH, Missouri
[Vacant]
Shelley Husband, Chief of Staff & General Counsel
Perry Apelbaum, Minority Staff Director & Chief Counsel
------
Subcommittee on Courts, Intellectual Property, and the Internet
HOWARD COBLE, North Carolina, Chairman
TOM MARINO, Pennsylvania, Vice-Chairman
F. JAMES SENSENBRENNER, Jr., JERROLD NADLER, New York
Wisconsin JOHN CONYERS, Jr., Michigan
LAMAR SMITH, Texas JUDY CHU, California
STEVE CHABOT, Ohio TED DEUTCH, Florida
DARRELL E. ISSA, California KAREN BASS, California
TED POE, Texas CEDRIC RICHMOND, Louisiana
JASON CHAFFETZ, Utah SUZAN DelBENE, Washington
BLAKE FARENTHOLD, Texas HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia ZOE LOFGREN, California
RON DeSANTIS, Florida SHEILA JACKSON LEE, Texas
JASON T. SMITH, Missouri STEVE COHEN, Tennessee
[Vacant]
Joe Keeley, Chief Counsel
Heather Sawyer, Minority Counsel
C O N T E N T S
----------
JUNE 5, 2014
Page
HEARINGS
Tuesday, June 10, 2014
Music Licensing Under Title 17 (Part I)........................ 1
Wednesday, June 25, 2014
Music Licensing Under Title 17 (Part II)....................... 231
OPENING STATEMENTS
The Honorable Howard Coble, a Representative in Congress from the
State of North Carolina, and Chairman, Subcommittee on Courts,
Intellectual Property, and the Internet........................ 1
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, Ranking Member, Committee on the
Judiciary, and Member, Subcommittee on Courts, Intellectual
Property, and the Internet..................................... 2
The Honorable Bob Goodlatte, a Representative in Congress from
the State of Virginia, and Chairman, Committee on the Judiciary 3
The Honorable Jerrold Nadler, a Representative in Congress from
the State of New York, and Ranking Member, Subcommittee on
Courts, Intellectual Property, and the Internet................ 3
WITNESSES
Neil Portnow, President/CEO, The Recording Academy
Oral Testimony................................................. 7
Prepared Statement............................................. 10
Lee Thomas Miller, Songwriter and President, Nashville
Songwriters Association International
Oral Testimony................................................. 16
Prepared Statement............................................. 18
David M. Israelite, President and Chief Executive Officer,
National Music Publishers' Association
Oral Testimony................................................. 21
Prepared Statement............................................. 23
Lee Knife, Executive Director, Digital Media Association (DiMA)
Oral Testimony................................................. 34
Prepared Statement............................................. 37
Michael O'Neill, Chief Executive Officer, Broadcast Music, Inc.
(BMI)
Oral Testimony................................................. 42
Prepared Statement............................................. 44
Will Hoyt, Executive Director, Television Music License Committee
Oral Testimony................................................. 61
Prepared Statement............................................. 63
Jim Griffin, Managing Director, OneHouse LLC
Oral Testimony................................................. 71
Prepared Statement............................................. 73
SUBMISSIONS FOR THE RECORD
Material submitted for the Hearing Record........................ 107
MUSIC LICENSING UNDER TITLE 17 (PART I)
----------
TUESDAY, JUNE 10, 2014
House of Representatives
Subcommittee on Courts, Intellectual Property,
and the Internet
Committee on the Judiciary
Washington, DC.
The Subcommittee met, pursuant to call, at 10 a.m., in room
2141, Rayburn House Office Building, the Honorable Howard
Coble, (Chairman of the Subcommittee) presiding.
Present: Representatives Coble, Goodlatte, Marino, Smith of
Texas, Chabot, Issa, Poe, Chaffetz, Farenthold, Holding,
Collins, Nadler, Conyers, Chu, Deutch, Bass, DelBene, Jeffries,
Cicilline, Lofgren, Jackson Lee, and Cohen.
Staff Present: (Majority) Joe Keeley, Subcommittee Chief
Counsel; Olivia Lee, Clerk; (Minority) Heather Sawyer, Minority
Counsel; and Jason Everett, Counsel.
Mr. Coble. Good morning, ladies and gentlemen. Welcome to
the first of two hearings on music licensing issues. Probably
everyone here knows that I am an avid bluegrass fan, and
country music, as long as it is old-time country. I am dating
myself chronologically when I say that. I know that many of you
will welcome our new and veteran witnesses today.
Although every industry goes through changes over the
years, I think everyone would agree that the music business has
seen more than its share of changes over the past decade or
two. Many of us grew up in a world where we looked forward to
buying our favorite albums at the local record store. Today's
youth may not even know what a record store looks like, since
they prefer to download from iTunes or stream it on Pandora.
However, times change, and I am glad to see that the music
industry continues to adapt to the preferences of its fans and
making new music available. However, the current licensing
system hasn't changed. Many feel that our music licensing laws
were designed for a world that existed decades ago and have
become outdated. Music lovers can now access music virtually
anywhere on an ever-changing variety of devices.
I may be old--I am old--but I am also old-fashioned in my
view our copyright laws should provide access to music and
still protect the interest of copyright holders. This is a
traditional view of compulsory licenses, and I see no reason
why we cannot restore this balance. If not, we know consumers
will resort to pirate sites on the Internet for their
respective music.
Finally, there are some longstanding issues in the music
business that I feel are important for Congress to address, how
royalty rates are determined, who pays music royalties, and how
older music works are treated under Federal copyright law.
I have also been a friend of broadcasters for some time,
and I hope that the broadcasters and the music industry can
find a way to work together to resolve their common issues.
In closing, I did want to thank our panel this morning for
making time available for this hearing. While I would prefer to
spend the next few hours learning about how to make bluegrass
music more popular, I will instead spend the next few hours
learning about how to make all music more popular.
Again, I thank you, the panelists, and those others in the
audience for your presence today.
I yield back, and I recognize the distinguished gentleman
from Michigan, Mr. Conyers, for his opening statement, and then
I will get to the gentleman from New York.
Mr. Conyers. Well, thank you, Mr. Chairman and Ranking
Member Nadler. This is an important hearing and it is good that
everyone is here. I worked with Congressman Holding of North
Carolina to introduce H.R. 4772, the RESPECT Act, which
addresses a loophole that allows digital radio services to
broadcast recorded music before February 15, 1972 without
paying anything to the artists and labels that created it. This
bill would assure that legacy artists and copyright owners of
all works, whether recorded before or after February 15, 1972,
are compensated by those who benefit from the Federal statutory
license.
The current failure to pay these legacy artists is
shameful, and it is harmful to communities like mine, Detroit,
which has so many artists who were at the forefront of the
industry and should be compensated fairly for their
groundbreaking work. Taking someone else's labor and not paying
is simply unfair, and this bill seeks basic fairness for
artists who created sound recordings before 1972.
A related issue that must be examined is whether our
efforts to improve the music licensing scheme will be, in fact,
truly fair if it does not include performance rights for some
recordings. It is no secret I am a strong supporter of artists
and believe that the current compensation system on terrestrial
radio AM and FM isn't fair to artists, musicians, or the
recording labels.
When we hear a song on the radio, the individual singing
the lyrics or playing the melodies receives absolutely no
compensation. Every other platform for broadcast music,
including satellite radio, cable, Internet, web casting, pay a
performance royalty. Terrestrial radio is the only platform
that doesn't do this. This exemption from paying a performance
royalty to artists no longer makes any sense, if it ever did,
and unfairly deprives artists of the compensation they deserve
for their work.
We have a diverse panel of experts. I join with our
Committee in welcoming them and look forward to hearing them
and to working with my colleagues to ensure that the music
licensing process is fair and does not have unintended
consequences that harm artists or producers.
Thank you for allowing me to make this statement at this
time.
Mr. Coble. I thank the gentleman from Michigan.
The Chair now recognizes the Chairman of the full Judiciary
Committee, the gentleman from Virginia, Mr. Goodlatte.
Mr. Goodlatte. Thank you, Mr. Chairman, and good morning to
everyone. Welcome to the Subcommittee's first copyright review
hearing on music licensing.
Last Monday, the Subcommittee traveled to New York City to
learn about the first sale doctrine. One of the issues we
discussed was the applicability of first sale to the digital
environment, including music. As we heard at that hearing,
consumer expectations have changed substantially in the digital
era. Probably in no other area of copyright law have consumer
expectations changed more than in how consumers access music.
In a world of instant and constant access to entertainment
options on Internet-connected devices, laws that hinder or
stunt access to legal music not only hurt consumers, but also
the artists and the services that provide music to consumers.
Unfortunately, consumers who want to be able to easily access
their favorite songs anytime on all of their digital devices
face a legal framework written for the world of vinyl albums
and 8-track tapes.
Problems that have emerged from this current legal
framework include, among others: a lack of a unified, robust,
and easily accessible source of ownership records upon which
music delivery services can be built; uncertain dividing lines
between mechanical and performance rights; artists being
treated differently under the law depending upon when a work
was created; artists and music delivery services being treated
differently under the law depending upon how music is
delivered; artists and music delivery services being treated
differently under the law depending upon when a music service
first began operation; and an overall lack of transparency in
the industry regarding how revenue is accounted for.
During today's hearing, we will primarily focus on the
rights and legal regime associated with musical compositions.
We will hear from a broad spectrum of stakeholders, from
songwriters to those who collect revenues on their behalf to
those who deliver the musical works to consumers in new and
innovative ways.
Interested parties from across the spectrum have recognized
a need for changes in how our nation's copyright laws, as they
pertain to music, are structured. Some have called for tweaks
to our current licensing regime, while others have called for
more fundamental changes, such as moving toward a more free
market approach. I look forward to learning more about both the
problems plaguing the current framework and possible solutions
to these problems.
And I thank you all again for making the time to be here
this morning, and I yield back.
Thank you, Mr. Chairman.
Mr. Coble. I thank the gentleman.
The Chair now recognizes the distinguished gentleman from
New York, Mr. Nadler, for an opening statement.
Mr. Nadler. Thank you, Mr. Chairman, for holding this
hearing on music licensing under Title 17 as part of the
Committee's comprehensive copyright review.
I am sorry this hearing, as well as the last, is not in New
York, because everything is better in New York, but we have to
make due.
This is the first of a two-part hearing, which is fitting,
as these sections of the Copyright Act are very much in need of
scrutiny. It is often said that if we started from scratch,
nobody would write the law as it stands today. Music copyright
and licensing is a patchwork of reactions at different times to
changing technologies. From the development of player pianos
and phonograph records to the advent of radio and the Internet,
the law has constantly been playing catch-up, and quite often
failing.
Today, terrestrial satellite and Internet-based radio
stations deliver music to listeners in their cars, homes, and
at work. Each of these uses of music require licenses from
copyright owners for both the underlying musical work and the
sound recording, with the rights to each often owned or managed
by different individuals or entities. Over time and in an
effort to help ensure equity and access in this complicated
universe, Congress has created a statutory licensing scheme.
Unfortunately, the existing landscape is marred by inconsistent
rules that place new technologies at a disadvantage against
their competitors and inequities that deny fair compensation to
music creators.
Under current law, for example, the rules vary from payment
of royalties by Internet broadcasters, cable radio and
satellite radio providers. Internet broadcasters like Pandora
pay royalty rates set to reflect a willing buyer and willing
seller model. By contrast, the rate for cable and satellite
providers is established through factors set in 1998 that
predated the development of Internet radio and that many
believe results in a below-market royalty rate.
As a result, Pandora has fairly complained that it is at a
competitive disadvantage, and creators whose works are accessed
through cable or satellite receive less than when a consumer
streams that same work over the Internet.
During the last Congress, I circulated draft legislation,
the Interim FIRST Act, to establish parity among all digital
radio services. The Songwriter Equity Act, recently introduced
by Representatives Collins and Jeffries, would similarly
modernize the law to ensure that the same willing buyer/willing
seller standard governs songwriters' and music publishers'
mechanical reproduction royalties.
Other provisions of the Copyright Act prevent songwriters
and publishers from providing evidence in Federal rate court
under consent decrees governing licensing of their works that
came into existence in 1941. The Songwriter Equity Act would
remove that evidentiary ban, thus helping songwriters obtain a
fair market value for their work.
In the meantime, the DOJ, the Department of Justice, just
announced a much-needed review of the consent decrees that
govern ASCAP and BMI, two of the performance rights
organizations responsible for collecting and distributing
royalties.
Meanwhile, nobody is paying artists who recorded many of
our culture's greatest musical classics before 1972, like
Aretha Franklin or the Birds or the Temptations. The RESPECT
Act, recently introduced by my colleagues, Representatives
Holding and Conyers, would close an existing loophole in the
law that has allowed digital providers to argue against paying
any royalties for these great legacy artists.
Of course, one of the most glaring inconsistencies and
injustices is that our performing artists, background musicians
and other rights holders of sound recordings receive absolutely
no compensation when their music is played over the air on
terrestrial--meaning AM/FM--radio. Congress required payment
when sound recordings are transmitted digitally in 1995, but we
have yet to extend this basic protection to artists when their
songs are played on FM or AM radio.
This is incredibly unjust. The bottom line is that
terrestrial radio profits from the intellectual property of
recording artists for free. I am aware of no other instance in
the United States where this is allowed, and it needs to be
remedied. We are on a very short list of countries, a list that
includes such wonderful models as Iran, North Korea, and China,
that do not pay performing artists when their songs are played
on the radio. And when American artists' songs are played in
Europe or any other place that does provide a sound recording
right, these countries withhold performance royalties from
American artists since we refuse to pay theirs.
This Committee's copyright review and the parallel
proceedings at the Commerce Department and the Library of
Congress have revealed an extraordinary and bipartisan
consensus in favor of performance rights. As Registrar of
Copyrights Maria Pallante testified earlier this Congress, this
issue is ripe for resolution.
Although the existing music licensing and copyright scheme
can be difficult to understand, the solution is quite simple.
If Congress is going to maintain compulsory licensing, then any
statutory rate standard should attempt to replicate the free
market to the greatest extent practicable, and the same rules
should apply to everyone. The law should be platform neutral
and all music created should be fairly compensated.
It is well past time to harmonize the rules and put an end
to Congress creating arbitrary winners and losers. There have
been several proposals to address individual inequities in the
music landscape, some of which I just outlined that I support.
But if we are to rationalize the law and level the playing
field, we should take a comprehensive approach.
At this year's Grammys on the Hill event, Neil Portnow, who
is here with us today, called for the industry to coalesce
behind the music omnibus or MusicBus. This call for unity was
later echoed by Republican Whip Kevin McCarthy and Democratic
Leader Nancy Pelosi, who agreed that the time has come for
Congress to address these issues in one package. I agree, and I
plan to take up their charge. With colleagues on both sides of
the aisle, I am developing legislation to address the various
problems in existing law in one unified bill, bringing fairness
and efficiency to our music licensing system and assuring that
no particular business enjoys a special advantage against new
and innovative technologies.
Consumers don't know that the button they push on their car
dashboard or smartphone arbitrarily determines how much artists
and songwriters will be paid, assuming they will be paid at
all. We can create a better system for radio competitors, for
artists and songwriters, and for fans, all of whom depend on a
vital, healthy market for music and music services.
We have a wide range of witnesses here today and at our
second hearing scheduled for June 25th. I look forward to their
testimony, and I hope that we can all come together to agree on
and pass meaningful, comprehensive reform.
Thank you, Mr. Chairman, and I yield back the balance of my
time.
Mr. Coble. I thank the gentleman.
All other opening statements, without objection, will be
made part of the record.
We have a distinguished panel today, seven in all, and I
will begin by swearing in our witnesses prior to introducing
them.
So if you would, gentlemen, please stand, and I will submit
the oath to you.
[Witnesses sworn.]
Mr. Coble. Let the record show that all answered in the
affirmative.
I will now introduce the witnesses.
You may be seated, gentlemen.
Our first witness this morning is Mr. Neil Portnow,
President and Chief Executive of the Recording Academy. Prior
to joining the Recording Academy, Mr. Portnow served as Vice
President of the West Coast Division of Jive Records. Mr.
Portnow received his degree from George Washington University.
Mr. Portnow, good to have you with us.
Our second witness is Mr. Lee Thomas Miller, Songwriter and
President of the National Songwriters Association
International. Mr. Miller is a three-time Grammy Award nominee
and has written country singles that have reached Number 1. He
received his Bachelor's degree in music theory and composition
from Eastern Kentucky University.
Good to have you, Mr. Miller.
Our third witness is Mr. David Israelite, President and
Chief Executive Officer of the National Music Publishers
Association, where he protects and advances the interests of
music publishers and songwriters in matters relating to
domestic and global protection of copyrights. Mr. Israelite
received his B.A. in Political Science and Communication from
the William Jewell College, and his J.D. from the University of
Missouri Columbia Law School.
Our fourth witness is Mr. Michael O'Neill, Chief Executive
Officer of BMI, also known as Broadcast Music, Inc. In his
position, Mr. O'Neill oversees all of BMI's domestic and global
business operations and directs the company's strategic growth.
Mr. O'Neill received his undergraduate degree in Business
Administration from the Mt. Claire University and his MBA from
Rutgers University.
Our fifth witness is Mr. Lee Knife, Executive Director of
Digital Media Association, also known as DiMA. Prior to joining
DiMA, Mr. Knife practiced entertainment law in New York for 20
years, representing individual songwriters, recording artists
and producers. Mr. Knife earned his B.A. from St. John's
University and his J.D. from the Brooklyn School of Law.
Our sixth witness is Mr. Will Hoyt, Executive Director of
the TV and Music License Committee. Prior to joining the
Television and Music License Committee, Mr. Hoyt spent 25 years
as the executive for Nationwide Communications, Inc. He was
graduated from the Ohio and Western University and received his
J.D. from Ohio State University School of Law.
Our seventh and final witness is Mr. Jim Griffin, Managing
Director at OneHouse LLC. Mr. Griffin consults extensively on
digital music, media registries, and scholarly publishing.
Prior to OneHouse, he served as President of Music Licensing at
Warner Music Group. Mr. Griffin received his degree from the
University of Kentucky.
Gentlemen, we have a full roster here today. Good to have
all of you with us.
To assist you, there will be a timing panel on your desk
reflecting certain lights. When the light goes from red to
yellow--strike that. When the light goes from green to yellow,
that is your warning that you have 1 minute remaining and the
ice on which you are skating is becoming increasingly thin. You
won't be keel hauled, however, but when that yellow light
appears, that gives you notice that 1 minute is upcoming. So if
you all would comply with that, we would be appreciative.
Mr. Portnow, we will now commence with you.
And again, thank you all for being here.
TESTIMONY OF NEIL PORTNOW, PRESIDENT/CEO,
THE RECORDING ACADEMY
Mr. Portnow. Thank you, Chairman Goodlatte, Chairman Coble,
Ranking Members Conyers and Nadler, and Members of the
Subcommittee. My name is Neil Portnow, and I am President----
Mr. Coble. Mr. Portnow, you might pull that mic a little
closer to you, if you would.
Mr. Portnow. My name is Neil Portnow, and I am President
and CEO of the Recording Academy. Known internationally for our
Grammy Awards, the Academy is the trade association that
represents music's creators: songwriters, performers, and
studio professionals.
I thank you for the opportunity to address the Subcommittee
this morning. And since I have the honor of being the first
witness, let me start at the beginning, with the copyright
clause of the Constitution.
The Framers gave authors the exclusive right to their works
for a time in order to promote the progress of science and
useful arts. As today's hearing is focused on music licensing,
we should at the outset remember who the authors of music are.
They are the songwriters and composers who create the very DNA
of music. They are the featured and background performers who
perform those songs and bring them to life. They are the
producers and engineers who create the overall sound of the
recordings that we love.
Over the next two hearings, I urge you to keep music
creators foremost in your mind. They are the authors our
Founders expressly protected.
Of course, the Framers intended copyright to be an
incentive to create, but today we have a patchwork of laws that
do not address the challenges of the digital marketplace and
often create a disincentive to make music. Low streaming rates
prevent creators from making a living, performers and composers
must police the entire Internet to take down infringing works,
and traditional radio continues to use artists' recordings
without compensation while leveraging this unfair advantage as
they move into the digital world.
This last point is most glaring. Terrestrial radio is the
only industry in America that is built on using another's
intellectual property without permission or compensation.
Broadcasters in every other developed country in the world
compensate their performers.
The National Association of Broadcasters have spent a lot
of money lobbying to maintain their free ride. Since they are
not on the panel today, allow me to recount the history of
their failed argument on their behalf.
First they said the radio-artist relationship is
``symbiotic,'' but even their own biased study found the
benefit to radio is 10 times any perceived promotional benefit
to artists.
Then they said they are different because radio is free,
until they remembered that most Internet radio is free but
still pays royalties.
Then they said a royalty will put small stations out of
business, until we offered the smallest three-fourths of all
stations a flat royalty rate of as little as a few bucks a day.
Then they said the free market would take care of the
issue, until they opposed the Free Market Royalty Act that
would have actually created one.
Finally, they said it is a tax, until Grover Norquist said
it is not, and Grover knows a tax when he sees one.
The NAB has run out of arguments and run out of time. The
White House, the Copyright Office, and political groups ranging
from the AFL-CIO and the NAACP to Americans for Tax Reform and
Tea Party Nation, they all agree with us.
And while radio touts a nonsensical and non-binding
resolution, Congressional leaders from both parties are working
on real legislation to resolve this issue. Any copyright reform
simply must include a radio performance right.
To resolve this and other issues, we support several
thoughtful bills. The Songwriter Equity Act would allow
songwriters to be paid fair market value. The Protecting the
Rights of Musicians Act would insist that if broadcasters value
their own content, they must value the content of others. The
RESPECT Act would remove a loophole that denies older artists
royalties.
But now it is time for a unified, holistic approach to
music licensing. It is time for a music omnibus bill, or
MusicBus for short. With copyright review under way, we need
our industry and Congress to be visionary and create a unified
approach for the future of our business, and the MusicBus idea
is really simple: fair market pay for all music creators across
all platforms. And a music omnibus bill need not wait for the
entire Copyright Act to be revised. As Congress' own advisor on
copyrights, Registrar Maria Pallante, noted, ``These issues are
ripe for resolution.''
Mr. Chairman, a legal framework that includes compulsory
licenses, government rate courts, and consent decrees already
diminishes the Framers' vision of exclusive rights. If music
makers must be subject to these restrictions, let's at least
assure them that the result will represent what a free market
would have provided. We are not asking for special treatment.
We are simply asking for what is fair, fair market pay for all
music creators across all platforms, a simple concept, a single
bill, a just framework for music licensing.
Thank you very much.
[The prepared statement of Mr. Portnow follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Coble. Thank you, Mr. Portnow.
Mr. Miller? Pull that mic closer to you, Mr. Miller.
TESTIMONY OF LEE THOMAS MILLER, SONGWRITER AND PRESIDENT,
NASHVILLE SONGWRITERS
Mr. Miller. I am a writer, not an artist.
Good morning. My name is Lee Thomas Miller. I grew up on a
small tobacco farm in Jessamine County, Kentucky. I started
playing piano by ear when I was 11. By the time I was 15, I was
writing bad songs and playing them with my even worse band. But
we were just kids, so the people cheered, if only out of pity.
I went to college to study Music Theory and Composition and
graduated with a Bachelor's degree from Eastern Kentucky
University. That simply meant that I was now over-qualified to
play in the honkytonks where I had been singing. I was formally
educated in classical music composition while writing country
songs on the side, and these are two very different things
according to my professors. My parents were thrilled when I
finished college and mortified when I saved $1,000 and
immediately moved to Nashville.
For years I wrote songs, hundreds of songs. I played in
bands and took temporary jobs to pay the bills when needed. I
studied the songs I heard on the radio and began meeting and
learning from the songwriters who wrote them. On September 1st,
1996, I became a full-time songwriter, and then the real work
started. Eleven years. From the day I moved to Nashville it
took 11 years to have a hit song on that radio.
Since then I have been lucky and I have been blessed. I
have had hits, and I continue to earn a living by walking into
a room where there is nothing and making up something out of
thin air, something that is real, something that is tangible,
something that creates commerce. What I make is the seed that
fuels the entire music business. It generates thousands of jobs
and shapes the very culture we live in because, let's face it,
nearly everybody loves music. But I am one of the remaining
few. Since I started, nine out of ten of my colleagues don't
write songs as a profession anymore, because their royalties
can no longer feed their families.
This is an unjust system that must be changed. Rules
established in 1909, largely to prevent one player piano roll
company from becoming a monopoly, require me to grant a
compulsory license paying 9.1 cents for the sale of a song,
which I split with my co-writers and our music publishers,
regardless of what the marketplace might say my song is worth.
That is not much of a pay raise from the original 2 cents paid
in 1909.
Then royalties from my song performed on an Internet radio
station are set under consent decrees from World War II. The
judges who determine those rates are forbidden from considering
what the marketplace says my song is worth. Consequently, I
only receive thousandths of a penny for those performances.
I appreciate the luxury of the Internet as much as you do,
and I suppose I am as much of a slave to my smart phone as
anyone. But the current system has devalued the musical
composition to the point where songwriters are being crushed.
It is bad enough that it is so easy to steal the music today,
but a legal framework that allows songs to be streamed for
nearly free will destroy the livelihood of the American
songwriter if it is allowed to continue.
An important piece of legislation called the Songwriter
Equity Act has been introduced that would allow my copyright's
value in the modern marketplace to be considered in rate-
setting proceedings. I want to thank introducing sponsors
Congressmen Doug Collins and Hakeem Jeffries and all of the co-
sponsors of this legislation.
While it is a great start, even bolder revisions to the
current copyright law and music licensing rules are necessary
to establish true equity for today's songwriters and composers.
It is time for Congress to eliminate the compulsory license. It
is time for Congress to eliminate or drastically alter World
War II-era consent decrees.
Also, in the future, songwriters should be represented on
the governing bodies of music licensing and collection entities
and dispute resolution committees. Future licensing and
collection agencies should be able to compete with those with
large market shares. There should be true transparency
throughout the entire collection and payment process.
I am America's smallest small business. I sit down and make
stuff up. I do not succeed if my songs are not recorded, sold,
and played; and when I do get paid, I pay self-employment
income tax. With the money that remains, I raise babies. I buy
bread, gasoline, anniversary flowers, cough medicine, braces,
and guitar strings.
I can make you laugh or cry. I can make you do both inside
the same 3-minute story. That is the power of music, and it all
begins with a song. Congress, today I ask you, on behalf of my
family and the families of all American songwriters, to change
the archaic government regulations that prohibit us from
pursuing a fair market opportunity for the songs we create.
Thank you, Mr. Chairman, and Members of the Committee.
[The prepared statement of Mr. Miller follows:]
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__________
Mr. Coble. Thank you, Mr. Miller.
Mr. Israelite?
TESTIMONY OF DAVID M. ISRAELITE, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, NATIONAL MUSIC PUBLISHERS' ASSOCIATION
Mr. Israelite. Good morning. I would maybe rather give Lee
5 more minutes to talk, but as the principal trade association
of music publishers and their songwriter partners in the United
States, NMPA thanks you for the opportunity to testify.
The Committee is well aware that there are two different
copyrights involved in music, the copyright for the underlying
musical composition, which is the half of the music industry
that I represent, and the separate and distinct copyright for
any sound recording of that song. What is striking is just how
different these two copyrights are treated under the law and
through government regulation.
First, copyright law contains antiquated regulations that
unfairly distort the value of a songwriter's work. The
copyright in a song is a property right and should not be
regulated by the government unless there is a compelling reason
to do so. Songs should be valued in the free market just like
sound recordings.
Second, if there is to be regulation, then at a minimum
songwriters deserve to be paid a fair market value. There is no
intellectually honest objection to this point.
Third, Congress should reject any attempt to expand
compulsory licenses. Any additional regulation could have long-
term harmful consequences for creators.
Songwriters attempt to earn a living through three primary
means: mechanical reproductions, public performances, and
audio-visual synchronizations. Mechanical reproductions used to
represent our dominant income stream but today comprise only
about a quarter of our revenue. Section 115 of the Copyright
Act imposes a compulsory license that dates back to 1909. As a
result of this World War I-era law, songwriters and music
publishers are denied the right to negotiate the value of their
intellectual property in a free market.
In 1909, the rate for mechanical licenses was set by
Congress at 2 cents per song. Today's mechanical rate would be
more than 50 cents if adjusted for inflation. Remarkably, the
current statutory rate stands at 9.1 cents, and for those who
tire of hearing that statistic, imagine the fatigue of
songwriters being paid something less than a fair market value.
This paltry number is due to the Copyright Royalty Board
using an antiquated, below-market standard when setting rates
known as the 801(b) standard. It is a rate standard that is
harmful to creators. As former Register of Copyrights Marybeth
Peters argued so eloquently, ``While the Section 115 statutory
license may have served the public interest well with respect
to a nascent music reproduction industry after the turn of the
century, it is no longer necessary and unjustifiably abrogates
copyright owners' rights today.''
Fortunately, legislation has been introduced to begin to
address this inequity, and I thank Representatives Collins,
Jeffries, and other Members of the Subcommittee, including
Chairman Coble, for supporting the Songwriters Equity Act.
Public performance royalties represent the largest income
stream for songwriters. The songwriter's public performance
right is inherently a free-market right. It is not regulated by
law. But because the Department of Justice imposed consent
decrees on ASCAP and BMI in 1941, incredibly those consent
decrees are still in effect today. They do not sunset.
Under these World War II-era consent decrees, songwriters
and publishers may not negotiate the value of their
intellectual property in a free market. Instead, a Federal
judge in the Southern District of New York dictates how much a
songwriter is paid. Last week, the Department of Justice
announced it is undertaking a review of these consent decrees,
and we hope they will act quickly to ensure that songwriters
can receive fair market compensation.
Synchronized music represents the third significant source
of revenue for songwriters. This includes using music in
movies, television shows, as well as newer forms of this
writing, including music videos and YouTube. This is a free
market right. It is not regulated by law. It is not regulated
by consent decrees. Because the sync market is a free market,
it is the useful barometer for assessing the fair market value
of songs.
Not surprisingly, given both copyrights are negotiated in a
free market, the common industry practice is to pay both
copyright owners under the same terms. There is an amazing
amount of digital content available to consumers on the iTunes
Store, Google Play Store, Amazon Store. Movies, books, video
games, magazines, television shows, recorded music are all
available, and all of those copyrights are negotiated and
licensed in the free market. Only the content produced by
songwriters is uniquely singled out and subject to heavy
regulation.
On behalf of those songwriters, I ask you to let them be
paid fairly by letting them be free. Thank you.
[The prepared statement of Mr. Israelite follows:]
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__________
Mr. Coble. Thank you, Mr. Israelite.
Mr. Knife?
TESTIMONY OF LEE KNIFE, EXECUTIVE DIRECTOR,
DIGITAL MEDIA ASSOCIATION (DiMA)
Mr. Knife. Thank you, Chairman, Ranking Member Nadler, Vice
Chairman Marino, and Members of the Subcommittee. I thank you
for inviting me to testify here today. My name is Lee Knife,
and I currently serve as the Executive Director of the Digital
Media Association, or DiMA for short.
DiMA is a nationally recognized trade association that
represents many of the leading players in the digital music
marketplace. You are probably familiar with many of our larger
members which include companies like Amazon.com, Apple iTunes,
Google, YouTube, Microsoft, and Rhapsody. But there are several
additional companies we represent that play an equally
important part in the development of the digital music
ecosystem.
In little more than a decade's worth of time, the role our
companies have grown to play within the music industry is
simply amazing. With respect to consumers, our ingenuity has
provided fans of online music with access to new services and
offerings that satisfy almost every conceivable price point,
from online music download stores to on-demand streaming to ad-
supported Internet radio and more recently cloud-based
offerings.
With respect to copyright owners, our efforts have meant
the creation of new revenue streams that have handsomely
rewarded content creators and their agents for their creative
endeavors. Sound Exchange, for example, recently reported a 312
percent increase in the total sum of royalties it paid to
recording artists and labels in 2012 versus 2008. This is
thanks to monies paid by services operating under the Section
114 compulsory license, many of which we represent.
With respect to songwriter incomes, ASCAP and BMI, the two
largest performing rights organizations, recently reported
record high revenues of $944 million each in 2013. Meanwhile,
SESAC, the smallest of the three PROs, has witnessed its
revenue grow from just $9 million in 1994 to $167 million last
year.
All of these accomplishments, I am pleased to report, have
come as DiMA members increasingly have been able to
successfully convert would-be pirates into regular users of
legitimate royalty-paying music services. This task hasn't been
easy, and the current music licensing regime we are asked to
navigate makes it no less difficult. It is safe to say that if
we were writing from a blank slate today, no one would develop
the current system we are asked to operate under here.
In the remaining minutes of my time, I want to offer just a
few thoughts on what essential elements should be included in
any future music licensing reform package, followed by a quick
evaluation of why I think two recently introduced legislative
proposals in particular constitute bad public policy.
First, a 21st century licensing regime that is properly
suited to handle the needs of an innovative industry and a
consumer base that is consistently demanding legal access to
content when and where they want it has to include: one,
efficiency; two, transparency; three, safeguards that
adequately protect licensees from anti-competitive behavior;
four, a level playing field among similarly situated
competitors; and finally, five, it should shield licensees from
excessive legal risks when those licensees are acting
diligently and in good faith.
Greater efficiency has two immediately apparent benefits.
For licensees, it guarantees new products and services can be
brought to market sooner, which helps us in our fight against
online pirates. For creators, greater efficiency will mean less
of the royalties we pay for the right to perform or distribute
content will be used to cover administrative expenses. Last
year alone, more than $200 million in royalties paid by music
licensees was redirected to cover PRO operating expenses.
Greater efficiency would mean fewer middlemen and more money in
the pockets of songwriters.
The importance of transparency is obvious. If service
providers can't find the rightful owner of copyright-protected
works, then they can't license and pay for them, which means
the creator misses out on a royalty and the general public is
deprived of the benefit of enjoying his or her creativity.
For creators, greater transparency provides full visibility
into the total payments made by music services and the way
those payments are administered by the agencies and affiliates
that the artists rely on to administer their rights. This, in
turn, will allow those artists to make better informed
decisions about which agents they choose to employ to maximize
the net payments they ultimately receive.
In the area of competition, the need to protect licensees
from anti-competitive behavior may be greater now than any time
in history due to the recent consolidation in the recording and
music publishing industries. Some, particularly in the context
of licensing new musical works, have taken issue with this
notion and even ask that certain requirements imposed under the
Department of Justice's consent decrees be modified.
Before taking this considerable step, we would strongly
urge policymakers to review the history of the ASCAP and BMI
consent decrees, which is attached to my testimony, and also
recent Federal court cases which have made note of continuing
anti-competitive behavior carried out by various parties acting
on behalf of the music publishing industry.
Further on the subject of competition, a hallmark of a good
competitive landscape requires a level playing field be
established among similarly situated competitors. For several
years now, webcasters have had one simple request--namely, that
the same rate-setting standard, the 801(b) standard that is
currently used to determine performance royalties for cable and
satellite radio, be used to establish rates for Internet radio.
Record labels have relied on the 801(b) standard while
licensing their musical works since the 1970's, while cable and
satellite radio providers have relied on it while licensing
sound recordings since the 1990's, all without any----
Mr. Coble. Sir, your time has about expired.
Mr. Knife. Excuse me?
Mr. Coble. Your time has expired.
Mr. Knife. I'm sorry. I would just like to close by saying
we should consider the collective issues that I raised when we
consider an omnibus approach to copyright reform. Thank you.
[The prepared statement of Mr. Knife follows:]
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See page 108 for Supplemental Material.
__________
Mr. Coble. Thank you, Mr. Knife. I appreciate that.
Mr. O'Neill?
TESTIMONY OF MICHAEL O'NEILL, CHIEF EXECUTIVE OFFICER,
BROADCAST MUSIC, INC. (BMI)
Mr. O'Neill. Mr. Chairman, Mr. Ranking Member, Subcommittee
Members, thank you for inviting me today. I am honored to be
here. I would also like to thank Congressman Collins for his
sponsorship of the Songwriter Equity Act. It is being well
received by my members.
My name is Michael O'Neill, and I am President and CEO of
BMI. I have been working with songwriters, composers and
publishers, and with businesses, for over 20 years while at
BMI. We were founded in 1939 as a not-for-profit company, and
BMI today is one of the world's leading performing rights
organizations.
Under copyright law, whenever music is played in the
public, the creators of that music, people like Lee Thomas
Miller, are entitled to be compensated for their work. We
represent over 600,000 songwriters, composers and publishers,
and license their over 8.5 million works to businesses across
the country. We also work with rights societies all over the
world, wherever American songwriters' music is used, to make
sure they are paid for it.
Today, through the marriage of technology and artistic
creativity, digital media has truly democratized the industry.
It has knocked down barriers and created more opportunities for
creators than ever before. And while this is promising, as
these new innovations come out, BMI's mission is and always has
been to ensure that our songwriters and publishers are paid
fairly for their creative labors. That mission, however, is
being frustrated by an out-of-date regulatory framework.
BMI, like our competitor ASCAP, is governed, as you have
heard, under a consent decree. Almost all of those rules in
that consent decree date back to 1966 and beyond. Essentially,
we are locked into a model that might have been appropriate
when the Beatles first came to America, that might have been
appropriate when you had to get out of your chair or your sofa
to turn the channel on your television, but it is not
appropriate in today's modern world.
Here are four modest proposals to bring BMI and the world
of music licensing into the 21st century.
First, publishers currently do not have the flexibility to
decide when they choose to utilize BMI to license their works
and when they can license those works exclusively for
themselves. BMI's rate court has held that publishers must
choose between giving their works completely to BMI for all
conceivable uses or not joining BMI at all. So a publisher that
wishes to license one digital service on its own without the
involvement of BMI must pull out for every other use from BMI,
thus recreating what BMI does across the 600,000 businesses we
license.
Publishers should be allowed to decide what businesses and
what rights they wish to convey to BMI to license, and what
businesses and which rights they want to license themselves.
This will require a change to our consent decree.
Second, we need to be able to license more than just the
performing right. Under copyright law, businesses often need
multiple rights, especially online. Why make them seek out
multiple people to get those licenses? Give them the expertise
and the experience and the relationships with both the business
world and the creative world, the world of music. I believe BMI
is positioned to be that one-stop shop, a single destination
where businesses can secure every right they need, and our
decree should make that clear.
Third, the BMI and ASCAP rate courts should simply be
modernized. We propose replacing the current court with an
arbitration model. The result we are seeking would be faster,
less expensive, and be more market responsive for all parties.
Finally, the consent decrees should sunset when the basis
for those decrees no longer exists. As BMI's relative strength
in the marketplace is reduced by many new entrants, new
participants competing with BMI, we should be allowed to
operate on behalf of our writers on the same terms and
conditions as our competitors do.
So in conclusion, BMI songwriters and publishers face a
competitive landscape. In order to meet those challenges, all
participants need to provide greater flexibility and operate
more efficiently. When songwriters are unable to make a
sustainable living, we are all impacted.
The Department of Justice is undertaking a look at our
decree, and we are very excited and look forward to working
with them to make those changes.
On behalf of all BMI songwriters across all 50 States, I
thank you for your time.
[The prepared statement of Mr. O'Neill follows:]
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__________
Mr. Coble. Thank you, Mr. O'Neill.
Mr. Hoyt?
TESTIMONY OF WILL HOYT, EXECUTIVE DIRECTOR, TELEVISION MUSIC
LICENSE COMMITTEE
Mr. Hoyt. Good morning, Chairmen Goodlatte and Coble,
Ranking Members Conyers and Nadler, and Members of the
Subcommittee. My name is Will Hoyt, and I am the Executive
Director of the Television Music License Committee. The TMLC
represents some 1,200 local commercial television stations
concerning music performance rights and has, on behalf of its
members, been involved in negotiations, arbitration, and
litigation for decades with the performing rights collectives
that represent composers and publishers, ASCAP, BMI, and SESAC.
Based on TMLC's decades of experience interacting with
ASCAP and BMI, and more recently with SESAC, the consent decree
restrictions must stay in place, and consideration should be
given to extending these types of restrictions to any entity
that aggregates or bundles the power rightfully vested in
individual copyright ownership by Congress.
Local television stations broadcast network, syndicated,
and locally produced programs. In most syndicated programs,
stations do not select or control the music used in these
programs but are required to broadcast these programs precisely
as produced and recorded by third-party producers, and then
required to license the public performances embedded in the
program. The stations license these performances through ASCAP,
BMI, or SESAC. Because these organizations have separate and
distinct repertoires, each station must take a license from
each PRO.
Historically, these PROs have only issued licenses that
permit the use of all of the aggregated copyrights in their
repertoire without regard to the number of performances
actually made by local stations. This is the so-called blanket
license.
Decades ago, ASCAP and BMI entered into consent decrees
with the Department of Justice in order to settle antitrust
actions commenced by the Department. These consent decrees have
been instrumental in providing stations the right to reasonable
license terms in light of the extraordinary market power that
ASCAP and BMI enjoy by virtue of their aggregation of
performance rights and insistence on licensing those copyrights
only on a collective or bundled basis.
Independent Federal judges have ruled, for instance, that
under the ASCAP and BMI consent decrees, a station is entitled
to a limited reduction in blanket fees where some of the rights
to perform music in the station's programming were licensed
directly from the copyright owner. These judicial rulings have
helped facilitate more direct licensing within the industry,
and therefore more competition.
These alternative licensing arrangements and fee structures
were denounced by ASCAP and BMI, fought for in litigation by
stations, and would not have been possible without the consent
decree provisions.
As explained in my written testimony, SESAC is not subject
to these restrictions and is the subject of a class action
antitrust suit brought by local television broadcasters with
support from the TMLC. The licensing practices of SESAC
demonstrate what any performance rights collective or other
organizations that aggregate copyrights will do without the
types of restrictions contained in the consent decrees. The
Federal court recently denied SESAC's motion for summary
judgment in the class action antitrust case brought by
Television. The judge observed, ``It is undisputed that SESAC
possesses monopoly power in the relevant market,'' and
described the evidence of actions taken by SESAC in recent
years that are specifically banned by the ASCAP and BMI consent
decrees.
Attempts by TMLC to gain access to music performance
information maintained by PROs about the music contained in
television programs have often been denied on the grounds that
such music information is, supposedly, proprietary. A general
policy that requires collectives to publicly release usage
information on which user fees and royalty distributions are
based would help promote a more competitive market.
We stand ready to cooperate with creators, collectives, and
other users to find common grounds on legislation that would
promote competitive market values for the right to perform
musical works--that is, legislation that will fulfill the
constitutional provision to enhance the public interest.
Thank you all very much for your time.
[The prepared statement of Mr. Hoyt follows:]
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__________
Mr. Coble. Thank you, Mr. Hoyt.
Mr. Griffin? You are our clean-up today, Mr. Griffin.
TESTIMONY OF JIM GRIFFIN, MANAGING DIRECTOR, ONEHOUSE LLC
Mr. Griffin. Excellent. I think I am used to doing that.
So, my name is Jim Griffin. I am a media technologist,
which I think means I am the panel's geek. That is probably
appropriate. Twenty years ago this coming Saturday, when I was
the Director of Technology for Geffen Records, we released the
first full-length song online, Aerosmith's ``Head First.'' That
was on June 14, 1994. So it has been 20 years now.
And there are so very many issues that are at the forefront
of today's hearing. I am fascinated by all of them, but I am
going to focus on only one issue, and that is the growing need
for registries, for databases, comprehensive databases of
information related to creative works, and not just music. So
my remarks, while they focus on music, really span the field of
copyright. I am going to make just a half-dozen fundamental
points.
The first point is that our goal should be to make it fast,
easy, and simple to pay for music, movies, books, art, other
expressions of ideas, such that the market can work with
alacrity and efficiency. If we make it fast, easy and simple to
pay, more people will.
Secondly, we need comprehensive public directors. It is
unnecessarily difficult to pay your license from those
difficult to identify or locate. We must work to record,
enumerate, and update public databases that get creators paid
and works licensed, let alone provide attribution and create an
historic record of our culture's heritage.
Two years ago, I co-authored a scholarly paper for the
Entertainment Law Journal that we entitled ``Rights
Unenumerated, Rights Disrespected.'' The title tells the story,
and that is all of the story you need to know. Without rights
enumerated, they are very difficult to respect.
My third key point is that we should include all creators
when we build these databases. Performers, featured artists,
background artists, writers, editors, translators, owners, and
all associated with the copyrights should be included in the
rights to record and remuneration copyright information because
they often have remuneration.
Mr. Coble. Mr. Griffin, you may want to pull that mic
closer to you.
Mr. Griffin. Yes. They often have remuneration and
attribution rights, and they can also help us elucidate
ambiguous information. As much as we do with land records, we
should welcome any claim to any work.
Well, I guess I have 2 minutes to repeat a lot of it. So I
will go very, very quickly here for you. And just to repeat
that my name is Jim Griffin. I am the panel's geek, the media
technologist here, 20 years----
Mr. Marino. Excuse me, sir. We heard it all. We heard it
clearly.
Mr. Griffin. Gotcha, then. That is just fine by me.
The fourth key point that I am going to make is that we
need GUID, and that is Globally Unique Identifiers. No less
than a bank check or a credit card, we have to have a number
for each song, each book, each thing that we are trying to
track. Simply using the title or the artist's name is not
enough. There are so many different ways to spell the creator's
name or the title that it makes matching extremely difficult.
And, yes, it is true, we do rely upon semantic matching absent
Globally Unique Identifiers.
Globally Unique Identifiers are easy to explain. They are
just like the VIN number on a car. Without a VIN number, we
cannot accurately describe it. And when we have these Globally
Unique Identifiers, we need to have them in a public database
that is accessible to anyone to read, and we do not now have
appropriate databases for music, photos, graphics, to cite just
a few examples where it is not done at all.
This has many impacts. The key concern is that absent the
use of these unique global numbers, money disappears along its
path to its intended receiver. Where does this money go? It
goes to pools of unattributed income divided through market
share formulas at the organizations that collect the money and
not to the specific creator for which it is intended.
Fifthly, I will say that there is a market solution, and it
does not require the government to step in to fix it. The
government, I think, should provide a wholesale core database
that encourages retail activity at the edge of the market, no
different than what happens with Internet domain names. There
is a wholesale market at the center, but it encourages a retail
market solution at the edge.
Sixthly, I will finish by saying that the problem is
growing exponentially in front of us. In roughly the year 2000,
we saw 50,000 sound recording albums released a year. By
today's standards, we go through that in 4 days on Sound Cloud,
on January 4th, and sometime on January 1st YouTube sees that
much content ingested. We have a moving target.
If we expect respect for rights, rights need recordation
and enumeration, and this issue cuts across all concerns.
Regardless of how you license, you need to keep track of the
stuff that you are licensing. Thank you.
[The prepared statement of Mr. Griffin follows:]
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__________
Mr. Coble. Thank you, Mr. Griffin.
As we examine you all, we try to stay within the 5-minute
rule as well, so if you will work with us on that.
I am told that Chairman Goodlatte has a meeting that he
must attend, so we will let him kick it off.
Mr. Goodlatte. Mr. Chairman, I thank you for your
forbearance.
And to all of our witnesses, thank you.
The clock is ticking. I have four questions for all of you,
so that is 28 answers. They need to be really short, most of
them yes or no.
Number 1. We will start with you, Mr. Portnow. Would a free
market model be a better alternative than the licensing system
we have today?
Mr. Portnow. Well, it is a fair market that we need. In
other words, we have to pay for----
Mr. Goodlatte. Mr. Miller?
Mr. Miller. Yes. That is exactly what we are here to ask
you for today.
Mr. Goodlatte. Mr. Israelite?
Mr. Israelite. Yes.
Mr. Goodlatte. Mr. Knife?
Mr. Knife. I think we need a fair market, as Mr. Portnow
was saying.
Mr. Goodlatte. Mr. O'Neill?
Mr. O'Neill. Please, yes.
Mr. Goodlatte. Mr. Hoyt?
Mr. Hoyt. If you define ``free market'' as a competitive
market, yes.
Mr. Goodlatte. Mr. Griffin?
Mr. Griffin. As much as possible, but copyright is tough
because you start without one.
Mr. Goodlatte. Don't I know.
Number 2, former Register of Copyrights, Marybeth Peters,
once suggested a union of music rights so that music services
can more quickly get started. Would you support such a music
rights organization model rather than the current system?
Mr. Portnow?
Mr. Portnow. A complicated question. It would depend on
what that looks like. What I would say is that our community
cannot subsidize the establishment of new businesses, however,
off our backs.
Mr. Goodlatte. Mr. Miller?
Mr. Miller. We support anything that revalues the
copyright.
Mr. Goodlatte. Mr. Israelite?
Mr. Israelite. That would happen in a free market.
Mr. Goodlatte. Mr. Knife?
Mr. Knife. I think we wouldn't support the addition of
other layers of administration, but we do support anything that
leads to efficiency in the marketplace.
Mr. Goodlatte. Mr. O'Neill?
Mr. O'Neill. Yes.
Mr. Goodlatte. Mr. Hoyt?
Mr. Hoyt. We don't see the necessity for a government
regulated single unit, and we believe that the competitive
market will work in the long run.
Mr. Goodlatte. Mr. Griffin?
Mr. Griffin. I favor the consolidation that you described.
Mr. Goodlatte. All right. Here is the tough one. You have
to do some mental calculations quickly.
What is the appropriate split, Mr. Portnow, between a
songwriter and a performer for their work? And should Congress
determine the split, or should someone else? And if so, who?
Mr. Portnow. Nobody is getting rich from the new services.
We have regulatory bodies at this point who are making that
judgment. If it is done on a fair market value, then that is
what is important, that each of the creators have what is fair
in the marketplace.
Mr. Goodlatte. Mr. Miller?
Mr. Miller. Well, essentially it is two different things.
The underlying work is the words and the notes, and then you
have a sound recording. Mr. Israelite would have to speak to
the complications of that.
Mr. Goodlatte. All right. Mr. Israelite?
Mr. Israelite. A free market would answer that question,
and then the one place where there is a free market for both
copyrights, which is the synchronization right, it is generally
split 50/50.
Mr. Goodlatte. Mr. Knife?
Mr. Knife. We are generally agnostic as to what that split
would be, but we are inclined to move toward a system where we
would only have to pay one person, and others would define what
the split is amongst their rights.
Mr. Goodlatte. Mr. O'Neill?
Mr. O'Neill. I have songwriters who are artists, and I have
songwriters that are just songwriters, and they argue that
point often. I think the free market would ultimately determine
it.
Mr. Goodlatte. All right. Mr. Hoyt?
Mr. Hoyt. If you can create a truly competitive market,
that competitive market will determine the rates.
Mr. Goodlatte. Mr. Griffin?
Mr. Griffin. I don't think you should compel a particular
solution or percentage. I think you should allow the parties to
reach an agreement. But if they cannot, there needs to be an
alternate arrangement such that there is payment.
Mr. Goodlatte. Congratulations. We are through 21 of the 28
questions, and we still have a green light.
So, Mr. Portnow, this is a little broader, but be quick.
What are the less visible issues that Congress should be aware
of as we review our nation's music licensing laws?
Mr. Portnow. I think we have our hands full with the ones
that are visible. I am happy to talk about that privately.
Mr. Goodlatte. All right. Mr. Miller?
Mr. Miller. The current state of the digital world is so
debilitating to the songwriting community that, I assure you,
we cannot see beyond the obvious.
Mr. Goodlatte. Okay. Mr. Israelite?
Mr. Israelite. There has been quite a bit of focus on the
market power of Lee and his fellow songwriters, as opposed to
the market power of the people we license to. So I don't think
that Google and Amazon and Apple need protection in their
negotiations with songwriters.
Mr. Goodlatte. Mr. Knife?
Mr. Knife. I think some of the issues that aren't being
addressed are issues regarding the way money flows through the
system. There are large amounts of royalties being paid by my
member companies, and yet we still hear complaints from
songwriters that they are not getting paid.
Mr. Goodlatte. Thank you.
Mr. O'Neill?
Mr. O'Neill. With the consent decree from 1941 augmented in
1966, there are many issues below the surface that we just
don't have any time for.
Mr. Goodlatte. Well, perhaps my opening this up will cause
you or others to comment as we move forward.
Mr. Hoyt and Mr. Griffin?
Mr. Hoyt. If I may, Mr. Chairman.
In the interest of public policy, I think you have to
really look at the balance between the benefits of aggregation
and the potential elimination of price competition.
Mr. Goodlatte. Mr. Griffin?
Mr. Griffin. I think that it is a very difficult question
to answer definitively, and I will simply say that we have to
maintain some kind of monitoring in order to ensure balance.
Mr. Goodlatte. Going back to the point in your statement.
Mr. Chairman, thank you for your forbearance; 28 answers in
5-and-a-half minutes is pretty good.
Mr. Coble. You almost prevailed over the illuminating red
light, but you barely made it.
Mr. Goodlatte. Thank you.
Mr. Coble. The distinguished gentleman from New York, Mr.
Nadler, is recognized for 5 minutes.
Mr. Nadler. Thank you, Mr. Chairman.
Mr. Portnow, you endorse a comprehensive, unified
legislative approach to music licensing. What are the
advantages to a comprehensive approach? Are there harms to
doing it piecemeal? And what are the key elements of a
meaningful comprehensive bill? Briefly, please, because I have
a lot of questions.
Mr. Portnow. Well, I think we see the results of the band-
aid approach. Over the years we have cobbled together these
various different rights from different generations, and when
we arrive at where we are today, they just don't work. To do it
piecemeal at this point when we have a great opportunity to
make a difference, you hear everybody on this panel clearly
saying that we have to make some changes. I have heard most of
you saying that some changes need to be made. We need to grab
that opportunity. It is not certainly going to be easy. It is
complicated. But that is really the way to go.
Mr. Nadler. Are there harms to doing it piecemeal? Why do
we need a comprehensive approach?
Mr. Portnow. Comprehensive is the way to go in the long run
because the piecemeal has not served us well.
Mr. Nadler. Okay. Thank you.
We also sometimes hear that a royalty for performing
artists from AM/FM radio would benefit the biggest of stars,
not smaller artists. What is your response, and are there
studies out there showing this?
Mr. Portnow. The performance right, the way it would work
is that it would go to the artist, and the artist, whether he
is a large artist or a small artist, really is not relevant.
The fact is that when somebody's work is played on the air and
they are the performer, they ought to be paid. There is no
example in American history of business that profits from the
works of others without paying them.
Mr. Nadler. Well, actually, there is, but it is before the
Civil War.
Mr. Israelite, within the compulsory music licensing
system, one goal is to mirror the free market and maximize fair
market value. How do you envision achieving that for all music
creators? And can we do it in a comprehensive fashion so that
we don't leave anyone behind?
Mr. Israelite. So about a quarter of our industry is
regulated by a compulsory license with a bad rate standard,
Section 115. Our first preference would be to get rid of the
compulsory license. We don't think the government should have
any business in setting prices for songwriters. But the next
best thing and the thing that perhaps is more doable is to at
least give us a rate standard of willing seller-willing buyer.
If that were the case, I can promise you that on a $1.29
download, a songwriter would make more than 9.1 cents. So in
the absence of being given a free market opportunity, at least
let the judges that set our rates try to approximate what would
happen in a free market.
Mr. Nadler. What did you say that 1909 2 cents was worth
today?
Mr. Israelite. With inflation it would be about 50 cents.
Mr. Nadler. But it is only 9 cents. Thank you.
Mr. Israelite. It is 9.1.
Mr. Nadler. Okay. Thank you.
Mr. Knife, under current law there is a different rate
setting standard that is used to establish rates for cable and
satellite than for Internet radio. How has this impacted your
members?
Mr. Knife. Well, clearly the biggest issue, the biggest way
it has affected them is that they pay considerably higher
rates. The willing buyer-willing seller standard has led to
higher rates than the 801(b) standard has led to.
Mr. Nadler. So currently some of your competitors have an
advantage over you, and creating parity would at least level
that playing field?
Mr. Knife. Absolutely, sir. Yes.
Mr. Nadler. And why should we do the 801(b) instead of the
willing seller-willing buyer?
Mr. Knife. I think there are a couple of reasons. Probably
the first and foremost is that the willing buyer-willing seller
standard is relatively new. In the short tenure of its
application, it has resulted in some disastrous results that
this esteemed House has seen fit to intervene on. Whereas the
801(b) standard has been in existence for a far longer period
of time and hasn't resulted in any difficulty.
Mr. Nadler. I would quickly ask if Mr. Israelite and Mr.
Portnow agree with that statement about the impact of the
willing buyer-willing seller standard, quickly.
Mr. Israelite. The people that use songs may find it
offensive to pay a fair market rate for them. But the fact that
that would be a newer standard is no argument why a songwriter
doesn't deserve a fair market rate.
Mr. Nadler. Okay. Thank you.
Back to Mr. Knife, given potentially thousands of rights
that must be cleared for a single song to come to production,
in the free and fair market system you all favor, how do we
make this work? In a free and fair market system, how do you
deal with thousands of rights for a particular song?
Mr. Knife. Right. Well, I think those issues were addressed
a little bit by Mr. Hoyt and Mr. Griffin. We have to balance
the interests between an efficient marketplace, which might
include the collectivization of rights licensing, with fair
royalty rates. So we have to kind of balance those issues and
make sure that we are controlling those monopolized interests.
Mr. Nadler. Thank you.
Mr. Griffin, my last question, obviously. You said that it
is unnecessarily difficult to pay your license, so we must work
to create a comprehensive registry system.
Mr. Griffin. Yes.
Mr. Nadler. My first question is, do you mean going forward
or going backward? How much would such a system cost? How long
would it take to set up? Who would pay for it? And why?
Mr. Griffin. Users should pay for it. It doesn't cost
anything because it is profitable. If you look at the Internet
domain name----
Mr. Nadler. It wouldn't cost anything to set up this
massive system?
Mr. Griffin. Well, you already have a cost at the Copyright
Office. My point is that if you make it a market-based system,
you invite the GoDaddy's of the world in to help you fill and
populate that database, and they make money doing so. So if you
build a market-based system of registration, I believe you will
have the outreach----
Mr. Nadler. So it pays for itself. How long would it take
to set that up do you think?
Mr. Griffin. I think it could be done within a year.
Mr. Nadler. And are you talking about going forward only or
going back?
Mr. Griffin. It needs to go forward and backwards, and that
allows anyone to register any claim related to----
Mr. Nadler. And you think that you could register every
song going back to the song of Miriam and the Bible quickly?
Mr. Griffin. No problem with that. I think truly it should
happen that we register our heritage----
Mr. Nadler. Let me just ask, does anybody else want to
comment on the practicality of that?
Mr. Hoyt. I would just say that I think you can probably do
it prospectively, but doing it back years I think would be
extremely difficult. I think you have to leave the current
system in place.
Mr. Nadler. Mr. O'Neill?
Mr. O'Neill. There is a Global Repertoire Database that was
contemplated to be built overseas that had cost estimates of
between $30 million and $100 million, and it just fell apart
after 3 years of service.
Mr. Nadler. Okay. Thank you very much. My time has expired.
Mr. Coble. I thank the gentleman.
Mr. Israelite, is the Collins-Jeffries bill a comprehensive
solution to your problem, or do you see it more as a first
step?
Mr. Israelite. It is a very important first step. So for
the 50 percent of our industry that is regulated by outdated
consent decrees from World War II, it would at least allow the
Federal judge that sets the prices for songwriters to consider
evidence in the marketplace. That is not a solution, but it is
an improvement.
On the mechanical side, while it doesn't set us into a free
market, it at least lets the three judges that set the price
for songwriters for reproductions try to approximate what would
happen in a free market. So it is a very important first step.
Mr. Coble. And how does it affect over-the-air and digital
broadcasters?
Mr. Israelite. Well, for digital broadcasters, the
mechanical part of it wouldn't really affect them at all. And
for the other part of the bill that deals with performance, the
truth of the matter is that all it would do is allow the
parties to make arguments to the Federal judge. So we think
that it is not really a very significant burden on any
broadcaster to have to deal with the evidence of what rates
would be in a free market when arguing to the judge that
eventually is going to set the rates anyway.
Mr. Coble. I was going to discuss the split, but I think
you all pretty well responded to that with the Chairman's
comment.
Mr. Griffin, would you elaborate on the importance of fair
market value for all music performances? I think you all pretty
well did that close to unanimously in response to Chairman
Goodlatte's question.
Mr. Griffin. It was hard for me to hear the end of your
point.
Mr. Coble. Elaborate on the importance of fair market value
for all music performances. And do you feel that royalty
standards are harmonized or need some massaging?
Mr. Griffin. I do think that music should receive its fair
market value. There is no question about that. And I think it
is essential that in order to do so, we track music and its
owners such that we can identify them and those who
participated in them so that we can get them the money they
deserve that the market provides. Today that money often
disappears on its way to the creator.
Mr. Coble. I thank you for that, sir.
Mr. Miller, I am going to put these three questions to you
that may or may not be applicable to today's hearing.
Do you know bluegrass?
Do you know Tom T. Hall?
Can you play the fiddle? [Laughter.]
Well, that is ironic. I do. I grew up in Kentucky playing
the fiddle. I came to Nashville as a fiddle player. My first
job in Nashville was playing fiddle for Tom T. Hall. I lasted 3
days and he fired me. [Laughter.]
Mr. Coble. So I take it that you do indeed know him.
[Laughter.]
Mr. Miller. Very well, sir. Thank you. [Laughter.]
Mr. Coble. I think the Chairman pretty well touched on the
other questions that I had.
Thank you for your response, Mr. Miller. I will tell you, I
will identify and divulge the identity of the person who asked
that those questions be presented to you.
Gentlemen, thank you again.
I now yield to--who is next in line?--Ms. Chu for 5
minutes.
Ms. Chu. Thank you so much.
As co-chair of the Congressional Creative Rights Caucus, I
firmly believe that all artists should be fairly compensated
across all platforms. That is why I am a co-sponsor of both the
Songwriter Equity Act and the RESPECT Act. To me, it is just
not fair for songwriters to be paid, on average, 8 cents for
every 1,000 streams of their songs on digital radio. It is not
fair for legacy artists who own pre-1972 sound recordings to be
paid nothing for continuous streaming of their songs when
entire digital stations are dedicated to the music of the
'40's, '50's, and '60's. And let's not forget that recording
artists are paid nothing for countless plays of their songs on
AM/FM radio.
Last week I hosted a Music Leaders Roundtable in my
district where I heard from local songwriters, composers and
recording artists about the challenges they face trying to make
a living in today's music market. One of the most legendary
songwriters there, Lamont Dozier, told me about the challenges
that he has having to work at age 72 because he is paid very
little for songs that he has written that play on digital radio
despite the fact that he has written and produced over 54
number-one Motown hits and is also a number-one Billboard
recording artist.
So today's hearing comes at a crucial time for music
creators. These royalty disparities are in need of attention
and ultimately a resolution so that we can continue to have a
vibrant environment that fosters creativity and growth.
So I would like to ask Mr. Israelite and Mr. Miller,
because of a statutory mandate, songwriters and publishers are
forced to grant a license to anyone who wants to use their
musical work for reproduction and distribution in exchange for
paying a royalty set by the government, and the rate was first
set by Congress in the early 1900's at 2 cents per song. Today,
in 2014, it remains painfully low at 9.1 cents per song, and
let's not forget that this 9.1 cents is split by the songwriter
and publisher.
Let's assume the status quo prevails. What does the world
look like in 5 years for music publishers and songwriters? And
how can songwriters who are not also artists make a living off
of the very low rates that accompany streaming services?
Mr. Israelite. Well, in 5 years, if I am fortunate enough
to still represent songwriters and publishers, what I fear is
that I wouldn't have a Lee Miller sitting next to me, because
he wouldn't be able to make a living as a songwriter. It is
simply inexcusable that you can't at least get a fair market
rate for what the property value is in a song when someone
purchases a song.
So we are very thankful for your sponsorship of the
Songwriter Equity Act. It is a very important step toward
getting to a place where a songwriter can still make a living
when successful.
Ms. Chu. Mr. Miller?
Mr. Miller. Well, the reality is that our Songwriter's
Association looks at the numbers, that we have lost 80 to 90
percent of the songwriters over the last 12 years. Five years
is a long time, so I don't know. I fear what that would mean.
Certainly, if we do have status quo and we ease more into a
streaming model, it seems as catastrophic as we would assume
that it is.
What is interesting is my wife told me this morning that
late last night my 11-year-old, Noah, asked what happens after
today. Are all of Daddy's problems solved? Which caused my wife
to call and say I should understand more than I do, but answer
that question, what happens after today, does it get better.
And to her I have to say, I don't know. It is a hard process,
obviously a complicated process. I am not the legal guy here. I
look for words to rhyme with ``love'' every day. Until
yesterday, I had never used the word ``omnibus,'' okay?
[Laughter.]
And that is the truth. But I will say this, I hope that you
will take all of the facts into consideration and understand an
American profession is in a lot of trouble. I mean, we are
hurting.
Mr. Israelite. I will give you a shocking statistic about
the low rates paid by one particular company, Pandora. I
believe one of the founders has been a witness before this
body. Last year, that founder cashed out more in his stock
ownership than every songwriter in the United States combined
was paid from Pandora, and that just speaks to how low the
rates are because we don't have a right to negotiate the value
of them in a free market.
Ms. Chu. And, Mr. Portnow, could you talk about the role of
producers and engineers in creating music? Why is it important
that we highlight their contributions as we review the
licensing scheme?
Mr. Portnow. Sure, happy to. I know a little bit about
producers and engineers because when I was a young man in a
band and playing music, I had the experience of having a
recording contract and having a producer in the studio. And
then I became one. I was a record producer on staff for RCA
Records for years.
The producer is more analogous to what we would call a
director in the film and television business. So he or she is
the person that puts it all together, everything from booking
the studio to finding the songs to creating the sound and the
environment of those recordings, and we wouldn't have
recordings without them. They are not currently covered in the
statute, and that is important because they too need to be
compensated fairly for the work that they do.
We are in negotiations from the Recording Academy with our
friends at Sound Exchange. We think we have some good beginning
solutions for that, and happy to talk about that further beyond
the hearing today.
Ms. Chu. Thank you.
I yield back.
Mr. Coble. The gentle lady's time has expired.
The gentleman from Texas.
I stand corrected. The gentleman from Pennsylvania, Mr.
Marino.
Mr. Marino. Thank you, Chairman.
I normally don't do this, but I have a brief statement that
I want to make before I ask a couple of questions.
Although there are a number of issues to work through in
this copyright review process, music licensing may be one of
the most complex sub-issues. I know firsthand because I have
been meeting with all the stakeholders involved in this in
D.C., New York, Los Angeles, and most importantly in my
district. One thing is for certain, no one is happy.
Today, the current laws and consent decrees that
stakeholders must operate under to negotiate their copyright
licenses and royalties are simply not working. I have also
found this to be an incredibly divided group of stakeholders
who all seem to show some opposition to find commonalities to
work toward a solution, and it is high time that we need to
work harder to finding the middle ground.
Omnibus pieces of legislation--and maybe you can use this
as some words in your lyrics, Mr. Miller--omnibus pieces of
legislation tend to omit all of us. You see, I put that little
line in there toward the end. [Laughter.]
Many of you have heard me say this, but when it comes to
creating a solution, those of you in the private sector need to
get more involved in the discussion for a solution, because if
you can't come up with anything, you are really not going to
like what we legislate.
I would like to see all sides of the music licensing issue
come to the table to come up with something that works for all
industries involved, as well as for consumers, so that we don't
have to revisit this time and time again, and I look forward to
working with you.
And I will say this in the beginning. If any of you--many
of you have been coming to see me and talking about the issues,
and if you care to continue that, my door is always open.
Mr. Israelite, I have a question for you, please. You
stated in your testimony that your clients' revenues are
significantly below what they would be in a free market. Can
you elaborate on how you came up with your figures and why you
believe in getting rid of Section 115 and moving to a free
market would be the best solution?
Mr. Israelite. Thank you for the question, and I completely
appreciate your opening comment, and I would point out that
when a songwriter has been underpaid for over 100 years, any
solution that involves fair market compensation is going to be
opposed by anyone who pays for music. So it is understandable
why there are such deep divisions.
The reason why we believe that a fair market standard would
lead to a significant increase in songwriter compensation is
that if you look at the 75 percent of our industry that is
regulated, for the 50 percent that is the consent decree with
performance right, we know that the consent decrees lead to
significantly lower rates than what would happen in a free
market. We had a recent window of opportunity where there were
free market negotiations for very similar radio services with
Apple than happened with Pandora, and the result was
staggering.
On the mechanical side, the difference between a willing
seller-willing buyer standard and an 801(b) standard, the
Copyright Royalty Board has spoken to that issue in the past,
and they have indicated that there is a significant gap between
the two standards. So just by allowing us to have fair market
rates in that 75 percent of our industry, we know it would lead
to higher rates.
And if you look at the 25 percent of our industry that is
unregulated, the rate structures are significantly higher.
So I think that there is no doubt that would happen, and it
is understandable that anyone who has been benefitting from
this government regulation by not paying songwriters fairly
would fight hard against any change that would lead to fair
market compensation for songwriters.
Mr. Marino. Mr. Knife, although some stakeholders are
urging we move to a free market system, I know others are very
leery of this. Can you explain why in this particular industry
the free market approach might be questionable?
Mr. Knife. Again, I think it has to do with the idea of
some of the principles that I announced. We are talking about a
marketplace that needs transparency and efficiency. A free
market system would necessarily not be very efficient. When Mr.
Israelite talks about the synchronization license, he is not
talking about licensing synchronization rights on a wholesale
basis of 30 million songs or more at once. Synchronization
licenses happen individually. A song gets licensed into a movie
or a television program, and it is a rather slow and laborious
process.
So we have to balance the ideas of making sure we have an
efficient marketplace that might include the collectivization
of rights licensing and making sure that that collectivization
isn't used as an undue market power.
Mr. Marino. I yield back the remainder of my time.
Mr. Israelite. If I could quickly respond to that, because
while many synchronizations are done on an individual basis,
that premise is completely wrong. The largest music acquisition
source on earth is YouTube. YouTube needs a synchronization
license. It is completely licensed. It happened in a free
marketplace. And the rates, by the way, are significantly
higher than other forms of competitive services that are
regulated by consent decrees and compulsory licenses.
Mr. Coble. The gentleman's time has expired.
Mr. Hoyt, did you want to respond briefly?
Mr. Hoyt. Yes, quickly. I would just say that our
experience in television is that when you do locally produced
programming in what we would consider a relatively free market,
a competitive market, those rates--we think we have a lot of
evidence that those rates are much lower than they are coming
from ASCAP, BMI and SESAC.
Mr. Coble. The gentleman's time has expired.
The distinguished gentleman from Florida, Mr. Deutch, is
recognized.
Mr. Deutch. Thank you, Mr. Chairman.
Mr. Knife, you just said that a free market system would
not be efficient. The system that we have now, it seems to me,
is very efficient. It is efficient at putting an awful lot of
songwriters out of work. That is the system that we have now.
And just before I get into my questions, Mr. Miller, I have
a question for you. We talk a lot about percentages; there are
90 percent fewer songwriters. How many songwriters were there
10 years ago, 20 years ago, versus today? How many Americans
had to give up their profession because of the system as it has
evolved?
Mr. Miller. We can only speak to Nashville, which is a very
tight community, so we have the luxury of kind of knowing
everybody to some degree. We certainly figure based on prior to
consolidation of major publishers. You can kind of quickly look
at the possibility of 3,000 or 4,000 writers making a living
doing this, down to 300 or 400.
Mr. Deutch. Which I think is a really important point for
us to remember as we have this debate.
The hearing is really important, and the issues are
complex, and it is hard for us to figure out how to go forward
without picking winners and losers. But I was intrigued, Mr.
Knife, by what you said earlier. You said--and I think we would
all agree--no one would develop this system if we were starting
from a blank slate. That is absolutely right.
You also spoke about the need for a level playing field,
which again I think is what is really driving or what should be
driving this whole debate, this whole process that we are
engaged in. So if we start with that, what is a level playing
field, I just would point out a couple of things in the status
quo that I think are unfair and don't represent a level playing
field.
Maintaining different performance rights standards for
terrestrial radio and digital and its digital competitors seems
unfair both to the innovative digital services and to the
performers whose music is no less valuable when played over the
air. That strikes me as not a level playing field.
In the same vein, holding that music recorded before 1972
should be treated differently than more recent music is
disrespectful to the classic artists who have contributed so
much to America's musical legacy. But most importantly, that
makes no logical sense to defend differentiating the two. That
is not a level playing field.
And I would also agree with Mr. Israelite's point that
songwriters are too often given the short straw in this. I am
proud to serve with Marsha Blackburn as co-chair of the
Songwriters Caucus, and I think the Songwriter Equity Act that
would allow a rate court to consider other royalty rates for
establishing the digital rate and adapting a fair rate
standard, those are means, again, to leveling the playing
field. What we have now isn't what we would have started with,
but if ultimately the goal is to level the playing field, then
let's actually talk about how we do that.
Mr. Portnow, you ran through some of the unfair arguments
that have been used to defend the status quo on performance
rights versus terrestrial radio. For me the question isn't do
we make the change, but can we really defend the system without
making that change.
And again, Mr. Knife, I go to you. Is it fair to your
members, who are mandated to pay for the music that they play,
that broadcasters don't pay for the music that they play?
Mr. Knife. I think it is probably not fair as a general
principle, but I would leave it to this body to determine who
should be paying royalties and who shouldn't while we are
leveling the playing field. And, yes, we are asking for that
kind of comprehensive review.
Mr. Deutch. Because it certainly seems like we are saying
you, new technology, you pay for both rights because you are
just starting out, but a service that does the same thing over
terrestrial air instead of the Internet, the status quo there
is sacrosanct, so we shouldn't change it. That, I think, is my
problem with so much of this debate. There is this sense that
because things are the way they are, that makes them so, that
makes them sacrosanct, that is why broadcasters shouldn't have
to pay a performance right, that is why we continue to rely on
decisions from the 1940's and as amended in the 1960's. Those
are the issues we have.
Mr. Portnow--actually, Mr. Miller, let me just go back to
you, because I hate to think that you would spend a second
after this hearing trying to rhyme anything with ``omnibus.''
[Laughter.]
Mr. Deutch. And let me tell you, there is nobody who would
buy that record, listen to that record, least of all Members of
Congress.
But let me just ask you, you talked about what this has
meant in Nashville, and I thought the story that you told about
the exchange with your wife was really powerful as well. Can
you just give a little more of what this whole debate actually
means to you and the thousands of Americans who can no longer
earn a living because of this system that needs to be changed?
Mr. Miller. Well, the competition to write a hit song is
tough enough. I mean, it is hard to write a song. I mean, it
takes us a long time to learn how to do this. So we understand
that we are competing against the best in the world, and that
is fine, because we go in every day and we learn our craft and
we slug it out.
The problem that we are up against now where, even if we do
have a hit song, it may not mean anything, but yet millions and
millions and millions of people are consuming that song and
acquiring that song and listening to that song and singing that
song at the weddings and at their kids' graduations, I am not
really sure what we are supposed to do with that, and I am very
perplexed at the idea that we need to help out the entrepreneur
who wants to start a business by giving him the product. I
suppose if we gave the general store owner, if we asked the
farmer to give the corn and the potatoes for free, he would
have more luck succeeding in his business, but I am not sure
what that means to the farmer.
From the way we look at it, we are running out of farmers,
you know. So that part of it is very frustrating.
On the other hand, all of my colleagues are right now
sitting in a room not thinking about any of this. They are
concentrating on how to write the best song they possibly can
to get on the album to get on the radio. Really, first and
foremost, that is what we think about. We don't think about who
is going to pay or who is going to cut it. All of our energy
goes into writing the song because it is still art.
Mr. Deutch. Thank you.
Thank you, Mr. Chairman.
Mr. Knife. If I could take just a moment to respond to the
point about songwriters.
Mr. Coble. Very briefly, Mr. Knife. The time is expiring,
but go ahead, very briefly.
Mr. Knife. Thank you very much, sir. I was just going to
say that we keep hearing that there are less and less
songwriters based on the economics of this environment, et
cetera, but I think in BMI's own press releases they have
indicated that their membership has increased by 100 percent
between 2003 and 2013. I think ASCAP has similar growth
figures. So I am not sure where the idea that we are losing
songwriters is coming from.
Mr. O'Neill. May I respond to that?
Mr. Coble. Go ahead.
Mr. O'Neill. Yes, we have grown in the number of
songwriters. The advent of the Internet has helped us sign
songwriters online more than ever before. The question of how
many songwriters are still getting paid, is that number
growing, and that is not growing.
Mr. Coble. I thank the gentleman.
The gentleman's time has expired.
The gentleman from Texas, Mr. Farenthold.
Mr. Farenthold. Thank you, Mr. Chairman.
I would like to take a minute just to say a word about our
previous questioner was asking just because things are the way
they are. Well, businesses count on things being the way that
they are. The local radio station is counting on the things
that will continue to be the way they are when they decide
whether or not to give the morning D.J. a raise or go out and
buy a new transmitter. So as we change these rules, we have to
be very leery of the fact that different companies throughout
the country have invested and made business decisions based on
these rules. So we have to really make a clear and convincing
case for that.
Now I am going to get off my soapbox. Well, maybe not. I am
going to ask Mr. Portnow a question.
I am a former broadcaster, so I am pretty simple--pretty
sympathetic--I am pretty simple and sympathetic to the fact
that it is a tough struggle for broadcasters now. The same
forces that your industry is struggling with in new
distribution mediums and figuring out how to get compensation,
there is no way a radio station is going to get compensation
from Pandora. So they are facing a tough challenge.
You list a litany of reasons why they are not different
from some of these, but I do point out that there is an
historic--radio is highly regulated, a limited resource,
limited bandwidth, while you have basically unlimited room for
expansion in new programs digitally. So I just wanted to point
out there is a uniqueness there and a synergy that radio
stations have provided in allowing new music to be exposed. It
is different now when you can customize almost down to the song
what you listen to on the Internet. It used to be the record
labels and music publishers would pay folks to try to get radio
stations to play songs. So we have to keep that history in
mind.
But anyway, I want to go on now to BMI. If we allow
publishers to choose what they license to BMI, how do I know
what I am buying from BMI, what license I have and what I don't
have? In a recent ASCAP Pandora trial, a number of individual
publishers withdrew licensing rights for Internet services in
an attempt to negotiate more favorable royalties outside the
consent decrees. When Pandora refused the higher rates proposed
by two of the publishers, they asked for a list of work owned
by those publishers so they could pull them from their
playlists.
The publishers and ASCAP--obviously your competitor--
refused to provide a list of such works. This left Pandora with
the option to pay the price proposed by the publisher, not pay
the price and face infringement litigation, or stop playing all
music altogether.
How do you answer that when you are asking for some change
there and we deal with this issue?
Mr. O'Neill. Thank you, Congressman. I am a former
broadcaster also, and I understand where you are coming from.
Maybe that is why I am seated between Mr. Hoyt and Mr. Knife,
now on both sides of the equation.
I can't really comment on what was done by my competitor
ASCAP. I can comment on what BMI has done. I just got done with
testimony in our Pandora trial, and the same question was
raised to me, and we provided the information where necessary
and where our customers told us to provide the information.
As far as providing the information or transparency, as we
like to call it, the Department of Justice, their review of our
consent decree, this is a big subject that they are looking at,
and we are willing to explore that with them. We have spent 75
years at BMI building that business, that expertise, that data,
and we like transparency. Our writers demand transparency. That
is how we pay them.
What I don't think is appropriate is to give that same data
that we have spent years and years gathering, to give it to our
competitors to build their business, and I think we would fight
against that.
Mr. Farenthold. And how do you feel about Mr. Griffin's
GUID proposal? It used to be you could go look on the label of
a record and it would say ASCAP, BMI, it would have the
artist's name printed right there. A lot of times in digital
stuff, this isn't even available, even in the metadata.
Mr. O'Neill. I think it has merit. BMI and ASCAP have
recently formed a venture called MusicMark where we are
reconciling our two databases, along with marrying it up to our
partners up north in SOCAN, Canada, the performing rights
organization there, to get authoritative data. So I do think
the industries are moving in that direction.
Mr. Farenthold. Mr. Griffin, I really do like the idea. But
do you really think it could be done in a year?
Mr. Griffin. Sure. Here is the irony. We already have the
GUIDs. We are not recording them. We are not putting them in a
database. We are not making them available to the public. And
why? What kind of market could we possibly have without the
information? It would be like a stock exchange without the
listings.
Mr. Farenthold. I see my time has expired, but I appreciate
it.
Mr. Griffin. I also want to say Mr. Israelite said YouTube
is completely licensed, and it is not. It is licensed as
regards its members, but it is not licensed as regards small,
independent, medium-sized players who YouTube can't find to
clear the content, and that is obvious because the content that
has no ads wrapped around it is all unclear, because they can't
wrap ads around that which they haven't cleared, so an enormous
amount of their content is unlicensed precisely because they
cannot find the owners.
Mr. Hoyt. Could I make a comment on Mr. O'Neill's answer?
So that you understand, we have been trying to get transparency
from ASCAP, BMI and SESAC for years. We cannot get that
transparency. They refuse to give information to us. It is my
view that until that information is made public, all of the
details made public, you cannot attain a competitive market.
If you noticed, Mr. O'Neill's answer was ASCAP, SOCAN, and
BMI. That is not the users. We don't get to participate in
that. We offered to invest in a series of trying to get more QC
information, which is what we have for television. They refused
to allow us to participate in that whole project.
So to the extent that there is a transparency issue, I
think it is as much the collective's as it is anybody else.
Mr. Coble. The gentleman's time has expired.
The distinguished lady from California, Ms. Bass, is
recognized.
Ms. Bass. Thank you, Mr. Chairman and Ranking Member.
I would like to address the Justice Department's
announcement that it will review the consent decrees that
govern the PROs. I know that some of you feel that these
consent decrees are antiquated, and some think that we should
get rid of them altogether. At the same time I also recognize,
as indicated by the judge's decision in the recent Pandora
ASCAP case, that there are some who feel that these consent
decrees are in place for good reason and should remain.
Regardless, I think we have to ensure that the music
marketplace is sustainable and works for creators, platforms,
and consumers. So as the DOJ conducts its review, I wanted to
know if the panel can tell me what it wants to see from the DOJ
and what it thinks they can do to ensure that songwriters are
protected, the legitimate marketplace is protected, and the
system works for all parties. I know it is a lot to ask, but
maybe we could just kind of briefly, in my time, go down the
list.
Would you like to begin, Mr. Griffin?
Mr. Griffin. I am going to defer because this isn't my
issue as much.
Ms. Bass. Okay.
Mr. Hoyt. I think that if you look at the most recent SESAC
antitrust class suit against SESAC brought by television
broadcasters, you will see the absolute necessity of having
consent decrees in place. What happens under the current
practices and law, the collectives are allowed to aggregate
copyrights, individual copyrights, and then refuse to sell them
in any other way than on a blanket basis.
So we have a significant problem in modifying the consent
decrees because we think in the long run we will run into major
antitrust problems.
Ms. Bass. Okay, thank you.
Mr. O'Neill. I believe that there are many things that need
to be addressed in our consent decrees. I actually believe the
consent decree should be sunset and done away with permanently.
Mr. Hoyt earlier commented on a direct license in a
marketplace that led to lower rates, but it only led to lower
rates because the publisher or the writer still didn't have the
power to say no. They still weren't able to get outside of
BMI's regulatory framework to see what a free market could have
negotiated, would have negotiated, because that buyer, if they
didn't agree to the price, could have still gone back to BMI.
That was the ceiling. They could have never gone below the
ceiling or above the ceiling.
That is the framework that we are trying to do. We are
trying to give the marketplace, the songwriters and the
publishers, the power to go out and make their own deals and to
see what a true free market will hold.
Ms. Bass. Thank you.
Mr. Knife?
Mr. Knife. It is still early. We are still evaluating what
our position might be with regard to the DOJ's announcement.
But I think it is safe to say that when you have a marketplace
that is entirely controlled by three players, two of them being
rather significant, some type of control is necessary. So I
think we would probably pursue the application of the consent
decrees in some form.
Ms. Bass. Mr. Israelite?
Mr. Israelite. These are the longest running consent
decrees in existence. In 1979, the Justice Department adopted a
policy of no longer having consent decrees that don't sunset.
This decree never sunsets and hasn't since 1941.
To the point of market concentration, one of the most
important issues in this question is whether a rights holder
can pull things out of the collective and go into a
marketplace, and we are being told no. That is completely
antithetical to the purpose of the consent decree. So they want
to complain about having three powerful organizations, but they
want to deny the ability of a rights holder to leave them and
further take the market into a more decentralized way.
So there are so many things that should be changed. There
is no reason why ASCAP and BMI shouldn't be able to license
different types of rights. There is no reason why a rights
holder shouldn't be able to leave for a limited purpose if they
choose so. And the most egregious thing is there is no reason
why a licensee should be able to use the music by simply asking
without there being even an interim rate set, which takes all
of the incentive out of negotiating a rate.
Ms. Bass. Okay, thank you.
Mr. Miller?
Mr. Miller. Every argument and point that I have made today
is due to unnecessary government restrictions on the songs that
I create. I believe DOJ is decades overdue in making some of
this go away.
Ms. Bass. Thank you.
Mr. Portnow?
Mr. Portnow. What I think is clear is that consent decrees,
as currently written, don't result in fair outcomes for
songwriters and should be modified, and the Recording Academy
will be filing all comments directly with DOJ on this issue.
Ms. Bass. Okay. In my time left, does anyone else want to
respond?
Mr. Griffin. I will add, because I deferred, that I think
this is a situation much like that that is sports based, when
John Kennedy introduced the Sports Marketing Act of 1961 that
allowed baseball, basketball, football, hockey to work
together--owners, referees, players--in order to license. We
face an extraordinary time here when people are sharing the
content in the main to get around licensing, and where people
are sharing I think it is appropriate to allow the industry to
work together to address that for licensing purposes.
So I would lean toward more freedom as regards to those
consent decrees.
Ms. Bass. Thank you.
Mr. Israelite. And please don't forget, the licensees are
the ones that benefit the most from the collective license. So
while they may complain about having to negotiate its value,
the truth is that licensees are the ones that benefit the most
from having the ability to have the licenses collected.
Mr. Hoyt. I think there are two different opinions on that.
I will leave it at that.
Ms. Bass. Okay.
Mr. Marino [presiding]. The Congresswoman's time has
expired. Thank you, Congresswoman Bass.
The Chair now recognizes the gentleman from Georgia,
Congressman Collins.
Mr. Collins. Thank you, Mr. Chairman.
Mr. Marino. Doug. That is what I was going to call you.
Mr. Collins. I answer to one of them, any of them. Thank
you so much.
As many in this room know, this is something that is close
to my heart, and also the work that we are doing, and I
appreciate everyone on this panel. But I do have some
questions, and I want to go back because, in the end, before I
ask any questions, my views on this come from one thing.
When we talk of intellectual property, when we talk of
musical rights, we talk about a dream, a hope, or an emotion,
and those are all valuable property rights, and they need to be
compensated, and they need to be compensated fairly in a place
in which we can do that.
The numbers in Mr. Israelite's written testimony point to
the fact that digital music services pay songwriters and
publishers significantly less than they pay for the sound
recording.
Mr. Knife, do you think that a sound recording is 9 to 12
times more valuable than a musical composition?
Mr. Knife. Again, I think my trade organization and most of
my members are agnostic on the issue. We really don't have a
view as to whether or not the songwriter or the song is any
more valuable than the sound recording. What we would like to
see is an efficient marketplace that allows us to acquire both
rights at a reasonable rate and let the parties who have
interests behind that determine what the appropriate split is.
Mr. Collins. But you are, at this point, from your
testimony today, opposed to moving to a willing buyer-willing
seller standard. You are opposed to some of these things that
actually would move us to there.
Mr. Knife. I am opposed to a willing buyer-willing seller
standard that would unfairly continue to fragment the licensing
landscape.
Mr. Collins. That is not agnostic. That is having a belief
in one view.
Mr. Knife. I am sorry. I thought your original question was
whether or not I had a view as to what the split would be
between the sound recording and the composition.
Mr. Collins. The actual question was, was it more valuable
or not, and I just followed up on what you had said.
Mr. Israelite or Mr. O'Neill, would you like to respond to
that?
Mr. Israelite. Well, sure. It is not surprising that people
who pay for music would find it inconvenient to pay songwriters
under a willing seller-willing buyer standard.
I think we look at this in a two-part question. Number one,
for a service that uses music, what should they be paying for
content? I think we and sound recording owners are completely
aligned on that question, that music has value and that the
total amount paid for the content is something that a free
market should decide, and it should be significant.
But then you get to the second question, which is how you
divide that revenue. The current system is so out of whack that
while in every other country in the world radio money is
generally divided 50/50 or better for the songwriter and
publisher, in this country you have two things. One, broadcast
radio doesn't pay anything to artists and record labels, which
is wrong. And secondly, for digital radio, you are seeing split
divisions that have been as high as 57 percent to 4 percent,
which is just insane, and the only reason that can happen is
because of the different rate structures and regulation that is
put on the copyrights.
Mr. O'Neill. Just to add to that, I agree with what Mr.
Israelite just said. And also, to hit the willing buyer-willing
seller or the free market concept, I believe everybody benefits
from a free market--the songwriters, the composers, the
publishers, and the businesses--because a free market breeds
innovation, and a lot of the topics we talked about today would
just have to come about because of the competitiveness of a
free market.
Mr. Collins. Mr. Israelite, I want to follow up on
something you said. You talked about client revenues being
significantly below what they would be in a free market. For
the record, and for those who may not know this, do you have
evidence that supports that conclusion? And I do have another
question, so if you could answer quickly.
Mr. Israelite. Sure. I will offer two specific pieces of
evidence that I mentioned earlier.
With regard to mechanical rates, the difference between an
801(b) standard and not even a free market but at least a
willing seller-willing buyer standard, you can look to previous
Copyright Royalty Board decisions where they have commented on
the difference between the two rate standards and in one case
suggested that a willing seller-willing buyer standard was
worth more than twice as much as an 801(b) standard, and that
was from the SDARS1 case on satellite radio.
And with regard to performances, several of us have talked
about that limited window where publishers tried to withdraw
their digital rights, were later told that they couldn't, but
in that window there was a free market negotiation with Apple
Radio, and that negotiation, it was reported, presented a
result that was more than twice the value of the consent decree
result.
So I think it is absolutely undeniable that these two types
of government regulations significantly hurt the value of our
copyright.
Mr. Collins. Mr. Portnow, real quickly, do you think the
Committee should move forward on updating our music licensing
laws independent of a larger Copyright Act rewrite, or in
conjunction with?
Mr. Portnow. We are suffering over the fact that we haven't
upgraded and brought ourselves into the current environment. So
we believe that the MusicBus concept is the way to go. We can
get there in various different ways. The bottom line is the
free market raises all boats.
Mr. Collins. Well, thank you. I think the biggest thing
here is we are dealing with something which I want this
Committee and which I believe the leadership, the Chairman and
others, are looking for. We are dealing with in the past many
years. We are looking at what it will look like in 10 to 15
years. This Committee has to take that up.
Mr. Chairman, I yield back.
Mr. Hoyt. Could I just make a comment on that? There have
been several suggestions that we operate in a free market and
the free market is the way to go. Just so everyone understands
on this panel that we do not believe that we are operating in a
free, competitive market in television. One of the things that
ASCAP said to the Copyright Office, a seller's ability to
refuse to sell is a key requirement for a market transaction.
On the other side of that issue, a buyer's ability to refuse to
buy is a key requirement for a market transaction. We don't
have that freedom, especially in syndicated programming.
Mr. Coble [presiding]. The gentleman's time has expired.
The distinguished gentleman from New York, Mr. Jeffries.
Mr. Jeffries. Thank you, Mr. Chairman, and I thank the
panelists for their presence here today and for their
testimony.
Mr. Knife, let me just begin with you. I believe in your
testimony, certainly in your written submission, you indicate
that the Songwriter Equity Act and the RESPECT Act take us in
the wrong direction, correct?
Mr. Knife. Yes.
Mr. Jeffries. And you indicate that these two pieces of
legislation seek to create a music licensing framework that
caters to the unique interests of a limited group of
stakeholders, correct?
Mr. Knife. Correct.
Mr. Jeffries. Now, the limited group of stakeholders that
you refer to are songwriters, correct?
Mr. Knife. It is songwriters and their collectives, and
record labels, and performing artists and their collectives,
yes.
Mr. Jeffries. Okay. Now, in the music ecosystem that
exists, you have recording artists, correct?
Mr. Knife. Yes.
Mr. Jeffries. Publishers. True?
Mr. Knife. Mmm-hmm.
Mr. Jeffries. Broadcasters?
Mr. Knife. Right.
Mr. Jeffries. You have satellite radio, correct?
Mr. Knife. Yes.
Mr. Jeffries. Internet radio?
Mr. Knife. Yep.
Mr. Jeffries. Okay. And you also have songwriters, correct?
Mr. Knife. Mmm-hmm.
Mr. Jeffries. Now, aren't songwriters fundamental to that
music ecosystem that we just went over?
Mr. Knife. Absolutely.
Mr. Jeffries. Okay. So legislation designed to provide them
with fair compensation, that is not a tangential legislative
joyride, correct? That is an effort to deal with fair
compensation for a group of individuals central to the music
ecosystem. Isn't that correct?
Mr. Knife. I disagree. I think it continues down the road
of what Mr. Portnow has complained about here, which is the
kind of piecemeal approach to updating copyright, as opposed to
a holistic view of making sure that we have all of the concerns
that have been expressed here today addressed comprehensively.
Mr. Jeffries. Okay. But I think we would all perhaps agree
that a comprehensive approach--and I believe testimony has been
rendered to that effect by a wide variety of people with
different opinions--is the preferred way to go. But we have
some inequities in the system, and I am trying to get an
understanding as to whether you believe there are actual
inequities in the system.
So songwriters are central to the music ecosystem. We can
agree with that, correct?
Mr. Knife. Yes.
Mr. Jeffries. Now, are they currently compensated in a fair
fashion?
Mr. Knife. Obviously, songwriters don't think they are, but
I think there are a lot of issues attendant to that. As I
testified to earlier, there are inefficiencies in the system
where my member companies pay hundreds of millions of dollars,
indeed probably over a billion dollars a year in royalties for
various uses of musical works, yet we still hear complaints
about songwriters at the end of that system not being
compensated appropriately. I think that requires us to look at
the entire system and not just an individual approach.
Mr. Jeffries. Okay. I think there is reasonable evidence on
the record--Congressman Collins referred to some of it--to
indicate that songwriters are not fairly compensated under the
current system, and perhaps the reason that occurs is because
we are not operating in a free market context. True, Mr.
O'Neill?
Mr. O'Neill. Yes, I agree with that.
Mr. Jeffries. Okay. Now, you indicated, Mr. Knife, that
there are inefficiencies if we move to a free market context.
Is that correct?
Mr. Knife. No, I didn't say there were inefficiencies. What
I said is that there is a large potential for inefficiencies,
and what we have to do here, what this body should be trying to
do is striking a very, very delicate balance between the
efficiencies that are necessary for large-scale music licensing
versus the potential for market abuse by creating collectives
that allow the negotiation for large bodies of works.
Mr. Jeffries. Who could potentially abuse the system in the
context of a free market? I am struggling with understanding
your position here in the context of the history of the
republic, which is that a free market has led to innovation,
creativity, prosperity, 200-plus years of record evidence in
the United States of America that a free market system is not
inefficient, it is efficient when properly regulated. Who is
going to abuse the system in the context of a free market
designed to provide songwriters with reasonable compensation?
Mr. Knife. Well, I think we see that with the consent
decrees. We have heard a lot of talk here today about how the
consent decrees are decades old and they haven't been updated,
et cetera. Yet we have a rate court decision that was rendered
within this year, earlier this year, that seems to indicate
that a lot of the behavior that the consent decrees were
intended to oversee and to regulate still occur. So I think
there are opportunities for collectives to engage in anti-
competitive behavior, and that is one of the things we have to
look out for.
Mr. Hoyt. I think a perfect example of that is SESAC and
its actions since 2008 in the television industry. If you take
a close look at that, you will see that. I do not disagree with
you, by the way. If there is truly a free market, that it will
be efficient.
Mr. Jeffries. And let me also note--I know my time has run
out, but in the context of anti-competitive behavior, right now
we have ASCAP, we have BMI, and we have SESAC, correct? And the
Supreme Court or courts in this country have consistently
stated if we have three entities engaged, three entities, you
do not have conditions for anti-competitive behavior to exist,
and that is what exactly exists currently in the music industry
if we were able to move to a free market standard, and I yield
back.
Mr. Israelite. And, Mr. Chairman, SESAC is not here to
defend itself. But quickly, you have an organization that
probably has significantly less than 10 percent of the market,
and yet you have accusations that they somehow have such
concentration that they need regulation. I think that is a
ridiculous proposition.
Mr. Hoyt. I have to respond to that.
Mr. Coble. The gentleman's time has expired.
Mr. Hoyt, very briefly.
Mr. Hoyt. I just wanted to say that it doesn't take very
much in terms of copyright aggregation to be in a monopoly
position. If you read the decision by the judge on the summary
judgment motion that SESAC made, you will find that he very
clearly believes that there is at least a potential--we haven't
proved it yet, but there is a potential for violation of the
antitrust law.
Mr. O'Neill. A single copyright by its definition is a
monopoly.
Mr. Coble. The gentleman's time has expired.
The distinguished gentleman from California, Mr. Issa, is
recognized for 5 minutes.
Mr. Issa. Thank you, Mr. Chairman.
I am glad that the last words I heard were that the
copyright is a monopoly. I am pretty sure that the restraint of
trade is not the intention of copyright. At the time of our
founding, I think it is pretty clear that the goal was to get
authors, and songwriters obviously, but authors compensation to
induce the creation of these useful arts. Nowhere was restraint
considered to be there. So the idea that there is only one
seller of an asset does not a monopoly make.
Are any of you antitrust attorneys here? I would love to
have one. But let's just----
Mr. Israelite. I dabble.
Mr. Issa. Okay. Mr. Israelite, I am glad you are dabbling
because I can't think of a song--and I have some songs I just
dearly love. I can't think of a song that I can't live without
in favor of millions of others, hundreds of thousands at least.
The fact is that songs are in competition, and the author and
the performer are simply people in competition to sell their
wares who look at this as how they get their wares to market.
Don't strain your eyes, Mr. Hoyt. This is that sort of
complex of if I have a musical work and I am a publisher, a
songwriter, or I am the label and artist, how I get to what
with whom--and it blows up on additional pages. It is a
PowerPoint you don't ever want to spend that much time on.
[Laughter.]
So I have been listening to everyone talking about free
market, and the Chairman of the full Committee has absolutely
said he wants to do comprehensive reform for a reason, which
is: it needs it.
Every one of you has a vested interest in some part of the
status quo, and every one of you is railing against some part
of the status quo.
Mr. Israelite, I think some time ago--I am Chairing the
Committee next door. I am double-tasking a little, or multi-
tasking. But when I was here before, I pretty much think I
heard you complain about how much money Pandora's founder got
when he cashed out.
Mr. Israelite. No. I was not complaining about how much he
made. I was complaining about that amount compared to the total
amount paid to songwriters. I want him to make more money, but
I would like him to pay songwriters fairly.
Mr. Issa. Well, and that is a good question. If you look at
the revenue being received from SiriusXM and the revenue from
Pandora, it is not insufficient if you compare it with all of
AM and FM, right?
Mr. Israelite. You must divide between the money paid to
record labels and artists versus the money paid to songwriters
and music publishers. And if you look at the totality of money
paid for our performances, as I stated earlier, it is about
half of our revenue. I believe it is significantly undervalued
because of the way that the consent decrees work.
Mr. Issa. Well, let's get back to that. In the real
marketplace, doesn't it start off with the identity of the true
owner before sub-licensing? Isn't that the first question, who
owns the rights, if you will, to the song, and who owns the
rights to the performance, and isn't that pretty opaque today?
Mr. Griffin, you seem to be chomping at the bit. Even
though you are a technology expert, I will let you answer.
Mr. Griffin. Fair enough. We live in a time of Tarzan
economics. We are moving from one vine to the next. The old
vine was music the product. You had to clear the rights before
you sold it in the stores. In the new world, it is almost like
car accidents. The use of music has become anarchistic. Mr.
Hoyt points out that sometimes his broadcasters aren't even
sure what they are broadcasting because it comes from third
parties. New music services allow people to upload songs for
which they become responsible.
Mr. Issa. Okay. But my question--famously, I told Eric
Holder here he wasn't a good witness because he didn't seem to
ever answer the question asked. You are getting there.
[Laughter.]
The question that I asked is, isn't there an opaqueness to
who the original owners are?
Mr. Griffin. No question.
Mr. Issa. Okay. So wouldn't one of the things from a
technology standpoint and from a reform standpoint be that
there should be transparency as to who owns the rights and, of
course, that is a lot of people in some cases, and it is only
one person in some cases, and then transparency as to who has
taken on that right? So the original owner, the access to the
contract that gives a third party rights, shouldn't that be
transparent, and wouldn't that be the beginning of empowering
both the willing buyer and the willing seller to have the
opportunity for the reforms that some of you are talking about?
I see a lot of heads, so I will start with you.
Mr. Griffin. That was my only testimony today, was that we
should build directories of these things, and we should go
further than the owner because the performers have a downstream
remuneration right.
Mr. Issa. Right. I was talking about all the beneficial
owners.
Mr. Knife. I can answer your question in one word--
absolutely.
Mr. Issa. Mr. O'Neill, your silence is golden, but----
Mr. O'Neill. No. I believe that the blanket license has
served radio since the dawn of radio.
Mr. Issa. Radio doesn't pay a cent to the performers. They
have been served well.
But go ahead, Mr. Knife.
Mr. Knife. Yes, I was going to say that I have made a lot
about the need for transparency and also for efficiency, and
higher transparency necessarily leads to greater efficiency. If
we had transparency about rights at the very primary level,
that would necessarily lead to a lot more efficiency in the
system.
Mr. Issa. Anyone else?
Mr. Israelite. The best way to get transparency is to put
us in a free market because then you will have an incentive, if
you want to license your copyright, for it to be known. There
is an assumption in your question that somehow a copyright
owner couldn't say no, that they couldn't decide that I will
create a copyright and I will keep it to myself, and I don't
want to license it. That is a right that a property owner has.
Mr. Issa. Okay. Mr. O'Neill was cut off a little unfairly.
If you could just let him answer whatever he had, I would
appreciate it, Chairman. I have no further questions.
Mr. O'Neill. Thank you, Congressman. Personally, I think we
have a lot to lose at BMI with a free market, but we have a lot
to gain also. We are allowing our publishers to go out to
license directly, or to license exclusively, and people said
shouldn't you be scared of that, Mr. O'Neill? Shouldn't you be
worried about that? But I think we would retain them. I think
we would have to be competitive. We would have to be innovative
in a way that would be different tomorrow. So, that is all I
wanted to say.
Mr. Coble. Thank you.
Mr. Israelite. And Mike deserves a lot of credit for that
position. It is a very forward-thinking position.
Mr. Coble. The gentleman's time has expired. Thank you.
The distinguished lady from California, Ms. Lofgren, is
recognized for 5 minutes.
Ms. Lofgren. Well, I thank you, Mr. Chairman.
Actually, I think this is one of the better panels we have
ever had on this subject, and anybody listening to this group,
although we don't necessarily know the answer, we certainly
know what the questions are. So that is a big advance.
I sometimes think if you just follow the money, it helps
you understand what is going on. We are looking at Mr. Miller,
who has a legitimate desire to be paid for his work; Mr.
Portnow, who represents many, many other people in that same
situation.
Just some statistics. It is my understanding that, for
example, BMI reported really record-high revenues last year, a
5 percent increase over 2012 revenues. And if you take a look
at revenues going to BMI just as an example, in 2003 it was
$629 million; last year, $944 million. That is a 50 percent
increase in revenue into BMI.
If you take a look at streaming Internet services, much has
been said that maybe they are not paying enough. None of them
is making a profit. If you take a look at Spotify, it just
reached 10 million paid subscribers. It has never posted a
profit. Pandora has 3.3 million subscribers. Last quarter it
posted a $28.9 million loss.
The generator research did an analysis and said this: ``No
current music subscription service, including marquee brands
like Pandora, Spotify, and Rhapsody, can ever be profitable,
even if they execute perfectly, because they are paying 60 to
70 percent of revenue for licensing, which is unsustainable.''
So when I look at these statistics, I am wondering why Mr.
Miller isn't getting paid and how we fix this. As I have
listened to you, Mr. Griffin, it seems to me what you are
proposing basically is a transparent system that takes the
middleman completely out of this scenario, potentially. Is that
going to work in the Internet?
Mr. Griffin. No, I don't think it takes the middleman out
at all. I think they are still extraordinarily valuable for
aggregation, for promotion, any of a number of roles that the
societies play and that the companies play. They only grow. But
it is absolutely critical that we record, enumerate, maintain
updates of those who are involved with these works, those who
own these works, those who we need to pay when these works are
used, and we do not do that now.
So it is extraordinarily difficult to talk about a market
when you cannot look up and find, say, all of the songwriters
of the track. And let me tell you that there are sometimes more
than 30 songwriters for a single song. And I suspect, although
I am not an attorney, that if they all get divorced once, there
are 60 rights holders to contact to clear that track.
Now, that is an important role for a middleman, to bring
those people together, but you have to be able to split that
money correctly downstream and find those who you would contact
to directly license if you wish to do so under a supposedly
free market.
Ms. Lofgren. Well, it seems to me that as we take a look
at--you know, nobody buys CDs anymore. Everything is going
online. Everything is downloaded. And it is important that we
have that digital delivery of music compensated so artists like
Mr. Miller can be paid. So there is a delicate balance here
where you need to actually make these services that are willing
to pay profitable, because if they go away, all that is left
online is pirates, and that is not a desirable outcome.
Mr. Knife, do you have any suggestions on how to deal with
this?
Mr. Knife. That would be a very, very long answer. I guess
the short version is that we should move very, very carefully,
as one of the other congressmen said earlier. Businesses build
their businesses based on assumptions of costs and how their
business is going to run over the years, laying out as they
establish their business plans. I think as we look at all of
these issues--the comprehensive licensing, compulsory
licensing, blanket licensing, et cetera--we need to move
carefully and we need to make sure that whatever system we come
up with adequately takes into account the fact that people are
building their businesses based on expectations.
Ms. Lofgren. It seems to me as we move forward, and I am
sure we will, everybody has to be at the table because,
although people are situated at different parts of the scene
with different financial interests, in the end, if we don't
have a system that works, Mr. Miller is not going to get paid,
Mr. Portnow is not going to get paid, and we end up with a
situation. It was 2 years ago that we dealt with SOPA that was
not going to work, but all of us agreed that we ought to follow
the money and make sure that we end up with a system that
compensates rights holders, and this is a key element of that.
Again, my time has expired, but I think this has been an
excellent panel.
Mr. Hoyt. I think one of the things we should remember that
you should take into account is the fact that businesses won't
have as many problems with prospective change.
Ms. Lofgren. Right.
Mr. Hoyt. So if you look at what is happening, I think you
should look more at the prospective rather than going
backwards.
Mr. Griffin. And allow me to add that as we move to
international trade more and more for our music, the BRICS
countries and others need to communicate with us in different
languages and different character sets, and our lack of any
kind of registry or any kind of unique number or respect for
them makes it very difficult to get Mr. Miller his money when
we are dealing with trade with a Chinese organization or a
Russian organization or anyone with a different language or
character set.
Ms. Lofgren. My time has expired, Mr. Chairman. Thank you
very much.
Mr. Coble. You will be pleased to know, Mr. Miller, mostly
you have a pretty good cheering section here today, for any
good that does.
Mr. Miller. This hasn't been near as hard as I thought it
would be. [Laughter.]
Mr. Coble. The distinguished gentleman from North Carolina,
Mr. Holding.
Mr. Holding. Thank you, Mr. Chairman.
Earlier in my career, I worked in the other body and was
legislative counsel working on tax issues. And although we
always kept our eye on the larger picture and our desire for a
major tax reform, tax overhaul, we were often confronted by
issues where a constituent or a constituent's business was
being unfairly impacted by an unintended consequence of a law,
rule, or regulation. We would work on a rifle-shot fix for that
unintended consequence.
I think that the RESPECT Act confronts an idiosyncrasy in
the law that has resulted in some of our greatest talents, just
because they recorded their music before 1972, aren't getting
compensated. The situation has also led to lawsuits in States
under a patchwork of State copyright law. This is costly. It is
complicated for everyone involved in this ecosystem, as it has
been termed, and I think it is a good reason for Congress to
act and provide some legal clarity not only for the artists
impacted but for the growing digital music platforms.
I want to point out that the digital music services are
playing an important role promoting artists of all generations,
and I want to commend them. These are new technologies, new
ways to enjoy music, and new revenue streams. So I wouldn't
begrudge the founder of Pandora for making a lot of money
because he has created a new revenue stream for artists to get
revenue.
So it is a discrete problem, and I think we have a rifle-
shot solution, and I think it is appropriate and a good
opportunity for Congress to act to fix this anomaly in the
system.
I also don't consider the RESPECT Act to be a stalking
horse for the larger issues that will ultimately be considered
and hopefully resolved in an overall copyright review. But I
don't think waiting for overall copyright review and fix is a
reason to forego fixing a discrete problem that is indeed an
unintended consequence of the law.
Now, Mr. Knife, I read your testimony, so I think I know
what you were laboring to get out about 2 hours ago.
Mr. Knife. Thank you.
Mr. Holding. You believe that the RESPECT Act will create
an anomaly. It caters to a limited group, these pre-1972
artists. But I think the anomaly, rather than creating an
anomaly, it is fixing an anomaly, that copyright law has left
open this loophole which companies can exploit. Because it is
pre-1972, they are playing the recordings. This is pretty
iconic music. The artists that are still with us aren't getting
any younger, and the services get to play this music for free.
Your members, they use the statutory license presumably
because it provides a one-stop shop for all the sound recording
rights that they need to operate a service, and it has also
become clear that those services believe that statutory license
doesn't apply to the rights that are protected only by State
law and rights to sound recordings made before 1972, but rather
you get the rights in some other way. These services have
simply decided not to pay anyone for the rights to play the
recordings.
So I recognize, from reading your testimony, that you may
not believe there is a performance right implicated by the
State law, and I think you are wrong, by the way. But I think
it is clear that there are some reproduction rights at stake
because you have to make a copy to your server before you can
play it anyway, so that is one point.
It is also clear that in a private market, directly
licensed services don't seem to draw a line between federally
and State protected recordings in the private sector, in the
private licensing that we have been talking about. In addition,
it is incredibly complicated to identify whether a recording
is, in fact, protected by State law. For example, if a pre-1972
sound recording has been sufficiently reengineered, it could be
protected by Federal copyright law. Foreign recordings that are
pre-1972 are protected by Federal law. It gets complicated.
So the agreement that you have, it seems that it would be
simpler for you to pay for all the music rather than try to
draw this distinction for pre-1972 music just because there is
a loophole there and you can. So laying all that out there, I
am just confused as to why your members haven't embraced this
kind of simple, elegant, rifle-shot solution, which I think
would be beneficial to your members.
Mr. Chairman, may he have just a minute to answer that?
Mr. Coble. Granted.
Mr. Holding. Thank you.
Mr. Knife. Thank you very much for laying the issue out so
clearly. The truth is that amongst my membership, some of my
members do pay for pre-1972 sound recordings, as you pointed
out, based on direct deals and other arrangements.
The point that I was trying to make about it establishing
an anomaly was not that it doesn't attempt--that the RESPECT
Act doesn't attempt to address an existing anomaly, but the
problem that we have with it is that it seems to just build
another anomaly onto that in that it doesn't afford full
federalization of these pre-1972 sound recordings. So it leaves
certain people disenfranchised and continues, as I have
complained about throughout today's hearing, the fragmentation
of the marketplace.
It doesn't allow libraries and archiving institutions to
have their rights. It doesn't afford the public a fair use
right. It doesn't apply the MCA protections. And probably most
importantly, it doesn't afford those older legacy artists the
opportunity to perhaps get their copyrights back or negotiate
for a better deal once the term of copyright would expire.
So that is our issue. Our issue is not that it, in and of
itself, is not a rifle shot or an attempt to rectify a
situation. Our issue is that it seems to be, once again, a
very, very narrowly tailored remedy that ends up creating more
anomalies within the system.
Mr. Coble. The gentleman's time has expired.
The gentle lady from Texas is recognized for 5 minutes.
Ms. Jackson Lee. Mr. Chairman and Ranking Member, let me
first of all take a little bit of my time to say that this is
an enormously important process. I have gone through this for
maybe almost a decade, and just the idea of an omnibus approach
and fixing it finally, or attempting to fix it finally, is a
very crucial moment, I think, in our history for intellectual
property and for all of us who enjoy over the years this thing
called music.
Let me apologize on the record. We were in a meeting for
the reauthorization of the Voting Rights Act, so that is why I
was away from the desk, and I think all of you who represent
such a diverse population understand how vital that is. So we
had to divide our time.
I don't know whether anyone has gone on record for the
omnibus approach, but I believe that is the right approach.
What I would like to do is to get some of you who are here to
indicate what would be the most important item to be an aspect
of an omnibus approach. I assume we will be listening to
broadcasters at some point, and others who are involved in this
process.
Many of you have known that my work has included the
valuing of the performance and the writer and the key element
of putting together music, which I think many of the newer
generation may not be familiar with, and all that it takes to
get a final product, because they see it in the quickness or
the twinkle of an eye.
So, Mr. Portnow, you have been with these issues for a very
long time and dealt with these issues of music being played,
being heard, being written. What would be the most important
element that Congress should look at if we were to look at an
omnibus approach?
Mr. Portnow. Thank you for the question, and I want to
certainly take a moment to thank you for your support of the
performance rights issue, which is critical to us, as I
indicated in my opening remarks.
I think it is really about fair market value. If we can get
our heads and arms around a fair market approach to all of the
constituents here, that is going to raise all boats. We all
have--whether the songwriter, the artist, the producer, the
engineer, those behind the scenes that are the background
musicians, all of them have a stake here. So we have to address
this in a way that each one of them winds up with a fair market
compensation for their work.
Ms. Jackson Lee. Thank you.
May I ask Mr. O'Neill, if you would, I heard your testimony
on BMI and the work that you are doing. What would be the most
important element in a bill that approached this from an
omnibus perspective?
Mr. O'Neill. I would also agree with the fair market
concept. I think the Songwriter Equity Act was a step in that
direction, to allow the courts to view all rates, all rights
when setting or when trying to approximate what a willing buyer
and a willing seller would do. That word is still
``approximate'' because it is not a willing buyer and a willing
seller. So I believe that the fair market aspect of an omnibus
bill would be beneficial to all parties.
Ms. Jackson Lee. And if I pressed you a little further and
indicated that there is this vast market of broadcast media
that is not the Internet, YouTube, how would they play into an
omnibus approach, so that we wouldn't have to go back down a
journey of no return, as we have done in times past?
Mr. O'Neill. I think they would be opposed to it. I think
ultimately--you heard today a little bit about the performance
right and sound recording, would radio be for it or against it.
I think you are tied to some legacy industries that don't want
to change or don't want to recognize the value of copyright
going forward.
They all own copyright themselves. They all know the value
of their own copyright. I think it comes down to sometimes the
question of what are the scales, the balance of payments for
those copyrights.
Ms. Jackson Lee. And you don't think a deliberative
approach would draw in those different elements? I am going to
call them different elements as opposed to labeling them
broadcast or otherwise. Bring them to the table? Because if you
construct a bill that just develops a fight, you haven't
advanced yourself. Do you think there is something that would
draw more persons to the table?
Mr. O'Neill. I do think that a bill--yes, I do. I think it
would be beneficial to have it all in one. Again, when we
started this, I preferred to keep it simple, something focusing
on the songwriters. But making it broader, you bring in many
more constituencies and it gets a little muddier, if you will.
So my initial thought was let's protect what we had, but we
also have to look at the broader, the greater good.
Ms. Jackson Lee. It might get muddy and come out on the
other side in a better perspective.
Mr. O'Neill. And I would love that.
Mr. Hoyt. Can I just suggest----
Ms. Jackson Lee. Yes. I was trying to go down the line.
Mr. Hoyt [continuing]. From a broadcaster's standpoint? I
don't think there is any broadcaster in the world who doesn't
want to operate in a competitive environment. It is how you get
to that competitive environment that is so difficult.
For instance, the one thing that I think local television
stations would benefit from would be somehow getting the
copyright holder to have to clear the performance right at the
time the production is made, not tying it into a what we call
``in the can'' product and then say, oh, you have to pay the
performance rights even though you didn't have a choice as to
what music was used, nor can you control--you can't get it out
of the program. So you are kind of stuck with no control, and
you still have to pay for it. It is a pure television problem.
I am not suggesting it is a problem all over. But from a
television perspective, you have to get the producer to clear
the performance right.
Mr. Coble. The gentle lady's time has expired.
Ms. Jackson Lee. Let me, Mr. Chairman and the Ranking
Member, thank you very much and just put a comment on the
record as I close, Mr. Chairman. My time has expired, but if I
could conclude.
I do want to say that I am fascinated with Mr. Griffin's
comment. I was not able to pursue questions about the registry
and how it would process into legislation, what would trigger
it, so hopefully we will have an opportunity to dialogue. If
Mr. Chairman will give me 30 seconds to hear Mr. Griffin's
answer?
Mr. Coble. Granted.
Ms. Jackson Lee. I thank you.
Mr. Griffin. I will just say, it couldn't be more important
as your priority because we call her the Registrar of
Copyrights. That is her prime function, Maria Pallante, and she
is great. So you have to, in this bill, empower her, give her
the resources she needs to revamp that office such that they
can properly record and enumerate the rights such that they can
be properly licensed, properly paid, that there can be proper
moral attribution of those who did these things such that the
history of our culture and our heritage are properly recorded
and enumerated. The rest can, in some ways, take care of itself
if we do that. But we do not do that at all.
Ms. Jackson Lee. I thank you.
I yield back.
Mr. Coble. I thank the gentle lady.
The gentleman from Pennsylvania had one final comment to
make.
Mr. Marino. Thank you, Chairman.
We are not going to take the time for each one of you
answering, but if you care to answer this question, would you
put it in writing and get it to me? Tell me what your
interpretation is of a fair market compared to a free market.
Mr. Coble. Gentlemen, this concludes today's hearing. I
will thank the panelists, and I thank those in the audience.
This standing-room-only audience indicates to me that this
issue is not an insignificant issue, and it will be visited and
revisited time and again, I can promise you.
Without objection, all Members will have 5 legislative days
to submit additional written questions for the witnesses or
additional materials for the record.
This hearing stands adjourned.
[Whereupon, at 12:29 p.m., the Subcommittee was adjourned.]
S U B M I S S I O N S F O R
T H E R E C O R D
Supplemental Material submitted by Lee Knife, Executive Director,
Digital Media Association
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
MUSIC LICENSING UNDER TITLE 17 (PART II)
C O N T E N T S
----------
JUNE 25, 2014
Page
OPENING STATEMENTS
The Honorable Howard Coble, a Representative in Congress from the
State of North Carolina, and Chairman, Subcommittee on Courts,
Intellectual Property, and the Internet........................ 235
The Honorable Jerrold Nadler, a Representative in Congress from
the State of New York, and Ranking Member, Subcommittee on
Courts, Intellectual Property, and the Internet................ 236
The Honorable Bob Goodlatte, a Representative in Congress from
the State of Virginia, and Chairman, Committee on the Judiciary 237
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, Ranking Member, Committee on the
Judiciary, and Member, Subcommittee on Courts, Intellectual
Property, and the Internet..................................... 238
WITNESSES
Rosanne Cash, Singer, Songwriter, Author and Performer, on behalf
of the Americana Music Association (AMA)
Oral Testimony................................................. 240
Prepared Statement............................................. 243
Cary Sherman, Chairman and CEO, Recording Industry Association of
America (RIAA)
Oral Testimony................................................. 247
Prepared Statement............................................. 249
Charles M. Warfield, Jr., Joint Board Chair, National Association
of Broadcasters (NAB), and Senior Advisor, YMF Media
Oral Testimony................................................. 256
Prepared Statement............................................. 258
Darius Van Arman, Co-Founder, Secretly Group, American
Association of Independent Music (A2IM)
Oral Testimony................................................. 268
Prepared Statement............................................. 270
Ed Christian, Chairman, Radio Music License Committee, Inc.
(RMLC)
Oral Testimony................................................. 294
Prepared Statement............................................. 296
Paul Williams, President and Chairman of the Board, American
Society of Composers, Authors and Publishers (ASCAP)
Oral Testimony................................................. 303
Prepared Statement............................................. 305
Chris Harrison, Vice President, Business Affairs, Pandora Media
Inc.
Oral Testimony................................................. 327
Prepared Statement............................................. 329
Michael Huppe, President and CEO, SoundExchange Inc.
Oral Testimony................................................. 344
Prepared Statement............................................. 346
David J. Frear, Chief Financial Officer, SiriusXM Holdings Inc.
Oral Testimony................................................. 362
Prepared Statement............................................. 364
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, Ranking
Member, Committee on the Judiciary, and Member, Subcommittee on
Courts, Intellectual Property, and the Internet................ 238
Material submitted by the Honorable Steve Chabot, a
Representative in Congress from the State of Ohio, and Member,
Subcommittee on Courts, Intellectual Property, and the Internet 378
SUBMISSIONS FOR THE RECORD
Material submitted for the Hearing Record........................ 411
MUSIC LICENSING UNDER TITLE 17 (PART II)
----------
WEDNESDAY, JUNE 25, 2014
House of Representatives
Subcommittee on Courts, Intellectual Property,
and the Internet
Committee on the Judiciary
Washington, DC.
The Subcommittee met, pursuant to call, at 10:01 a.m., in
room 2141, Rayburn Office Building, the Honorable Howard Coble,
(Chairman of the Subcommittee) presiding.
Present: Representatives Coble, Goodlatte, Marino,
Sensenbrenner, Chabot, Issa, Poe, Chaffetz, Farenthold,
Holding, Collins, DeSantis, Smith of Missouri, Nadler, Conyers,
Chu, Deutch, Bass, DelBene, Jeffries, Cicilline, Lofgren,
Jackson Lee, and Cohen.
Also Present: Representative Gohmert.
Staff Present: (Majority) Joe Keeley, Chief Counsel; Clerk,
Olivia Lee; (Minority) Heather Sawyer, Minority Counsel; and
Jason Everett, Counsel.
Mr. Coble. Good morning, ladies and gentlemen.
The Subcommittee on Courts, Intellectual Property, and the
Internet will come to order. Without objection the Chair is
authorized to declare recesses of the Subcommittee at any time.
We welcome all our witnesses today.
Let me get my chair adjusted here.
Could you give me a push here, John?
That's good, thank you.
Good morning and welcome to the second of two hearings on
music licensing issues. Two weeks ago, this Subcommittee heard
from your fellow music industry representatives about their
concerns with the state of music licensing copyright laws.
Looking around the room, I think we can conclude that you all
have more than a passing casual interest in this issue and we
welcome all of you here today.
At the earlier meeting, I mentioned my fondness for old
time, bluegrass and country. I don't know that that has
bolstered the popularity across the country. It probably
hadn't, but I will continue to try to do that. And I will make
my opening statement very brief because we have a long day
ahead of us.
Although the witnesses of this panel may not agree on
everything, I believe they all agree that music enriches the
world in which we live. Since this is part two of the music
licensing hearing, I won't repeat all the outstanding music
issues that Congress needs to address. I simply hope that in
the effort to improve the music licensing system, we don't lose
sight of the fact that creators need to be paid for their work
just like everyone else in this room.
Although our creative industries are the envy of the world,
I'm not sure that our music licensing system is. It may well be
time for a change, and that will be exposed perhaps today as we
go through this, maybe arduous journey, but maybe pleasant,
productive journey.
I yield back the balance of my time and recognize the
gentlemen from New York, the distinguished Mr. Nadler, for his
opening statement.
Mr. Nadler. Thank you, Mr. Chairman. And thank you for
holding this second hearing on Music Licensing under Title 17.
At the first hearing 2 weeks ago, we heard from a diverse
panel of witnesses representing performers, songwriters,
publishers, television licensees, and digital music delivery
services. Although there are varying points-of-view about the
specific problems most in need of legislative solution, it was
widespread agreement that the system is in need of
comprehensive reform.
As I stated at the first hearing, the current music
licensing system is rife with inconsistent rules and inequities
that make no rational sense. If we started from scratch, nobody
would write the law as it stands today. Terrestrial satellite
and Internet radio compete against each other under different
rules for compensating songwriters, performers, and other
rights holders, assuming those artists are even paid at all for
their works.
Several of the service providers have played an important
role in the music ecosystem are with us today. Local
broadcasters provide critical programming including news,
weather and emergency alerts and often form strong public
service partnerships with the communities they serve.
We also have representatives of digital radio, such as
SiriusXM and Pandora, who are making music available to
consumers in new and innovative ways. Although we may have
differing views about the best way to approach these issues, I
look forward to productive discussion about how to come
together to improve the music licensing system.
As I noted at the first hearing, our current scheme is so
haphazard because, in large part, pieces were developed at
different times and often in response to different innovations
in the music and technology industries. Rather than continuing
to adjust the system in a piecemeal fashion, I believe we
should take a comprehensive approach.
I am not alone in my belief that a comprehensive approach
is need. At this year's GRAMMYs on the Hill event, recording
Academy President and CEO, Neil Portnow, called for the
industry to coalesce behind a single bill. His call for unity
was later echoed by House Majority Leader, Kevin McCarthy, and
Democratic Leader, Nancy Pelosi, who agreed that the time has
come for Congress to address these issues in one package.
That is why I pledged at our first hearing in music
licensing to develop a comprehensive omnibus bill, which some
people have dubbed ``the music bus,'' to update music copyright
law. Congress should get out of the business of dictating
winners and losers and, once and for all, create a level
playing field.
The law should be platform neutral and all music created
should receive fair market-based compensation for their work.
There's a growing consensus that the system is in need of
reform. In addition to this Committee's ongoing copyright
review, the Copyright Office is conducting a music licensing
study. Just this week, it concluded a series of roundtables
held around the country in Nashville, Los Angeles, and New
York. The Commerce Department issued a green paper in updating
copyright including music licensing for the digital age. And
the Department of Justice is conducting a much needed review of
the consent decrees that govern ASCAP and BMI--two of the
performance rights organizations responsible for collecting and
distributing royalties.
I hope the DOJ review will be completed quickly as time is
of the essence for all the parties involved.
Today's hearing is another important step in this larger
effort to review and update the music licensing system. I am
interested in hearing from today's witnesses about the specific
issues they believe should be addressed and about how we can
best enact meaningful comprehensive reform.
I have no doubt that today's discussion will be just as
informative and useful as the discussion at our first hearing.
I thank you and yield back the balance of my time.
Mr. Coble. I thank the gentleman. Is the Chairman here?
The Chair recognizes the distinguished gentlemen from
Virginia, the Chairman of the House Judiciary Committee, Mr.
Goodlatte.
Mr. Goodlatte. Thank you, Mr. Chairman. Thank you for
holding this hearing and thank you for your diligence in the
number of hearings and the impressive array of hearings that we
have held on copyright issues. And I can see we have another
full house.
So good morning to you all and welcome to the
Subcommittee's second Music Licensing hearing. I see the size
of the witness panel has grown with interest in this issue.
Two weeks ago, a number of problems in the music licensing
system that currently exists were highlighted. In reviewing the
written testimony submitted in advance of this hearing, there
does seem to be agreement that a more robust copyright
ownership database is needed. There also seems to be an
interest by many in simplifying the diverse licensing and rate-
making systems. However, disagreement remains on whether all
those who use music should pay for it and what specific rate
standards should be used, among other issues.
As I mentioned 2 weeks, as we consider challenges and
potential solutions to the copyright laws relating to music, we
should keep in mind ideas that incorporate more free market
principles. We should also be mindful of the tremendous role
that digital music delivery services play in the music
ecosystem for consumers and creators alike. I have long said
that the content community and the technology community need
each other. It is my hope that we can identify improvements to
our copyright laws that can benefit both groups as well as
consumers by maintaining strong protections for copyrighted
works and strong incentives for further innovation.
Thank you and I appreciate you all making time to be here
this morning. And I will yield back, Mr. Chairman.
Mr. Coble. I thank the gentleman.
The distinguished gentleman from Michigan, the Ranking
Member, is recognized for his opening statement.
Mr. Conyers. Thank you, Chairman Coble, and good morning to
our distinguished panel. I see faces that I have worked with
before. And we welcome all the supporters of this subject
matter that are here in the Judiciary Hearing Room this
morning.
Since I agree with everything that's been said by my
predecessors, the gentlemen from New York and the Chairman
himself, I am going to just put my statement in the record. It
would be largely repetitive. Many of you know where I stand; I
have supported music as an important and vital source in our
national interests. And it is in that spirit that I welcome you
all to the Judiciary Committee this morning.
I ask unanimous consent to put my statement in the record
and yield back the balance of my time.
[The prepared statement of Mr. Conyers follows:]
Prepared Statement of the Honorable John Conyers, Jr., a Representative
in Congress from the State of Michigan, Ranking Member, Committee on
the Judiciary, and Member, Subcommittee on Courts, Intellectual
Property, and the Internet
At our first hearing earlier this month we heard from a diverse
range of key stakeholders, including songwriters, music publishers,
licensing entities, and music service providers. The witnesses
discussed the many anomalies in the copyright law as it applies to
music licensing that need be fixed.
I am interested in continuing to hear ideas about how to fix the
inconsistencies in the law and what additional steps we should take to
change the music licensing system. As we continue this discussion, I
hope we can keep a few guiding principles in mind.
First, I believe that all artists should be compensated fairly, and
that it makes no sense to have arbitrary decisions on who should be
paid for their work.
While there are benefits that some of the witnesses will note about
the U.S. system for free airplay for free promotion, I continue to
believe that there should be compensation for artists whose songs are
played over terrestrial radio. The existing legal framework must be
changed and it is long overdue.
I also believe that broadcast radio has played a valuable role in
the lives of people all across this country. These broadcasts have
educated listeners about emergencies and important events and have
provided new music to these listeners as well. And we will hear today
the great work that broadcasters continue to do in local communities.
As one of the witnesses today notes, the audience for FM radio is
larger than the listenership of satellite radio and Internet music
services. This is even more reason to work to achieve a performance
right for sound recordings.
Every other platform for broadcast music--including satellite
radio, cable radio, and Internet webcasters--pay a performance royalty.
Terrestrial radio is the only platform that does not pay this royalty.
This exemption from paying a performance royalty to artists no
longer makes any sense, if it ever did, and unfairly deprives artists
of the compensation they deserve for their work.
I would also like to hear the witnesses discuss the bill I have
introduced with Congressman Greg Holding from North Carolina--H.R.
4772, the Respecting Senior Performers as Essential Cultural Treasures
Act (RESPECT Act).
The RESPECT Act would address a loophole that allows digital radio
services to broadcast music recorded before February 15, 1972 without
paying anything to the artists and labels that created it.
I believe that taking someone else's labor and not paying is simply
unfair. And I would like to hear from the witnesses their opinions
about the RESPECT Act.
Second, as I noted at the first hearing, I believe that the process
for setting royalty rates should be inherently fair and competitive.
We will hear today that the current process is unfair and that, as
a result, the royalty rate does not provide creators with a fair market
value for their work.
This is one possible arena for legislative change and my
colleagues--Representatives Collins and Jeffries--have introduced The
Songwriter Equity Act to fix this particular problem. I would like to
hear the witnesses discuss that particular fix and what additional
changes, if any, should be made to the current royalty system to
address their concerns.
Third, we should strive to adequately account for the interests of
all players in the music ecosystem. As we consider changes to the law,
we must ensure that the music industry can continue growing and
bringing the wonder of music to the listening public, whose lives are
so often transformed and enriched as a result.
The complexity of music licensing laws means that all parties must
be willing to come to the table to discuss the best way to address
these issues.
At the music licensing hearing earlier this month we also heard
about how new technologies have transformed the way that people listen
to music. The streaming of music is on the rise and people are
listening to music on numerous devices. These changes in technology
will also have a large impact on the decisions we will make as well.
Any steps that we take must continue to encourage innovation and create
basic fairness for everyone in the music world.
I look forward to hearing from this panel of witnesses and want to
continue to work with my colleagues to tackle these complex music
licensing issues.
__________
Mr. Coble. I thank the gentlemen and the statements from
other Members will be made a part of the record without
objection.
Let me introduce our panel of witnesses as we proceed with
this business at hand. Our first witness this morning is Ms.
Rosanne Cash, singer, songwriter, author and performer.
I can hardly see you because of the impediment here, Ms.
Cash.
Ms. Cash has released 15 albums that have earned a GRAMMY
award and nominations for 12 more including 11 number one
singles. She completed her residency at the Library of Congress
in December of 2013 and was given the AFTRA Lifetime
Achievement Award for sound recordings in 2012. Ms. Cash is
testifying today on behalf of the American Music Association.
And, Ms. Cash, as I mentioned to you earlier, your late dad
also appeared before this Subcommittee and we enjoyed having
him be here as well. It is good to have you here.
Our second witness, Cary, I can't see you either because of
the impediment but I will hold you harmless for that.
Mr. Cary Sherman is Chairman and Chief Executive Officer of
the Recording Industry Association of America. In his position,
Mr. Sherman represents the interests of the 7 million U.S.
sound recording industry. He received his B.S. from Cornell
University and his J.D. degree from the Harvard School of Law.
Our third witness is Mr. Charles Warfield, Senior Advisor
of YMF Media. Mr. Warfield is a 31-year veteran of the
broadcasting industry and is here today on behalf of the
National Association of Broadcasters. He received his B.S. in
accounting from Hampton University.
Good to have you with us, Mr. Warfield.
Our fourth witness is Mr. Darius Van Arman, Co-Founder of
the Secretly Group; a family of american independent recording
labels based in Bloomington, Illinois. He is testifying today
on behalf of the American Association of Independent Music,
also known as A2IM. Mr. Van Arman attended the University of
Virginia.
Our fifth witness is Mr. Ed Christian, Chairman of the
Radio Music License Committee, also known as RMLC. He teaches
courses in media management, broadcast programming and radio
operations at Central University of Michigan. Central Michigan
University. He received his B.A. in mass communications from
Wayne State University and his M.A. in management from Central
Michigan University.
Our sixth witness is Mr. Paul Williams, President and
Chairman of the Board at the American Society of Composers,
Authors and Publishers. ASCAP represents hundreds of thousands
of music creators worldwide. Mr. Williams is the Oscar, GRAMMY,
and Golden Globe winning Hall of Fame composer and songwriter.
Mr. Williams, you will be glad to know that your friend,
Congressman Gilmore from Texas, admonished me to be easy on you
today. So with Gilmore looking down from his seat we will be
careful to adhere to that request.
Our seventh witness, Mr. Chris Harrison, Vice President of
Business Affairs and Assistant General Counsel of Pandora
Media. He's also an adept Adjunct Professor, teaching music law
at the University Of Texas School Of Law. Mr. Harrison received
his J.D. from the University of North Carolina, I am pleased to
say, and his Ph.D. in political science, also from the
University of North Carolina, Chapel Hill.
Mr. Harrison, good to have a fellow Tar Heel in the room
today.
Our eighth witness is Mr. Michael Huppe, President and
Chief Executive Officer at SoundExchange. In his position, he
is responsible for establishing long-term strategic plan and
vision for the organization. He received his B.A. from the
University of Virginia and his J.D. from the Harvard School of
Law.
Our ninth and final witness is Mr. David Frear, Chief
Financial Officer at the SiriusXM. In his position, Mr. Frear
is responsible for overseeing finance, IT and satellite
development operations. He received his M.B.A. from the
University of Michigan at Ann Arbor.
Gentlemen, before we begin to hear from the witnesses, I'd
like for each of you to stand. If you will, we will swear you
in.
[Witnesses sworn.]
Mr. Coble. Let the record show that all responded in the
affirmative.
We will start with Ms. Cash.
Folks, I will remind you, if you can, try to comply with
the 5 minute rule. When the timing light on your table goes
from green to amber, that is your warning that you have a
minute to go to reach the 5 minute pinnacle. You will not be
severely punished if you don't comply with that, but if you can
stay with that, we try to comply with the 5 minute rule as
well. The good news is, I don't think there is going to be a
vote but until after noon so that we will not be interrupted by
floor votes.
Ms. Cash, you are recognized for 5 minutes.
TESTIMONY OF ROSANNE CASH, SINGER, SONGWRITER, AUTHOR AND
PERFORMER, ON BEHALF OF THE AMERICANA MUSIC ASSOCIATION (AMA)
Ms. Cash. Thank you. Chairman Goodlatte, Chairman Coble,
Ranking Members Conyers and Nadler, Members of the
Subcommittee, thank you for the opportunity to testify on
behalf of the Americana Music Association.
I want to address a few obstacles to making a living as a
songwriter and recording artist today. Everything I say is
guided by one principle: All creative people are entitled to
fair market compensation when their work is used by others
regardless of the platform.
I have been both a professional musician and songwriter for
35 years. I grew up in the music industry, in the age of major
record labels and brick and mortar record stores. I have been
assigned a major label since 1978 and am currently on the
esteemed Blue Note label.
The climate among musicians at the moment is dispirited. We
feel marginalized and devalued although our passion for our
work remains unchanged. Every artist I know says, regarding
their work, that they have no choice. We don't create out of
whimsy, narcissism, or lack of ambition for more financially
dependable professions. We are fueled by an artistic
sensibility that can be ruthless in its demand for discipline.
And, in some ways, we are in a service industry.
We are here to help people feel, to inspire, to reveal the
secrets of the heart, to entertain, and provide sustenance for
the soul. Creating music is a collaborative effort. In the
creation of recorded music, cowriters, producers, fellow
musicians, recording engineers, background singers, and various
support people come together with the single purpose to create
one work.
I am a fan of new technology and I am excited about the
potential I see in the new ways of distributing music that are
being offered to music lovers. My enthusiasm is tempered,
however, by the realization that these new services are all
cast against the backdrop of crushing digital piracy and
licensed under outdated and byzantine laws which stand in the
way of creators being paid fairly for their work.
Among the problems facing us are; one, the lack of a public
performance right for terrestrial radio play for recording
artists. The United States is one of a few countries, including
China, North Korea, and Iran that lack a radio performance
right for artists. The failure to recognize this right means
that performers cannot collect royalties for their work even
when it is broadcast in countries where the right exists
because the treaties the U.S. has signed are reciprocal.
Two, issues concerning how rates are set for licenses that
songwriters offer for their work. Currently, the law prevents
courts from considering all the evidence that might be useful
in setting the fairest rates for licenses that performing
rights organizations offer. And royalty rates are not set on a
fair market basis. This makes no sense. The Songwriter Equity
Act, introduced by Congressmen Collins and Jeffries, would
address these issues and I thank them for that.
Three, the lack of Federal copyright protection for pre-72
sound recordings. There is a gap in copyright protection for
sound recordings created before 1972, which digital services
use as an excuse to refuse to pay legacy artists.
I thank Ranking Member Conyers and Congressman Holding for
introducing the RESPECT Act to treat the work of legacy
musicians fairly. For example, if my father were alive today,
he would receive no payment for digital performances of his
song ``I Walk the Line,'' written and recorded in 1956. But
anyone who re-recorded that song today would receive a royalty.
The injustice defies description.
These are a few of the many challenges we face as
performers and songwriters. And I understand Ranking Member
Nadler is considering legislation to comprehensively address
these and additional concerns.
Thank you, Congressmen Nadler.
Bottom line, copyright law should not discriminate among
individual music creators. Each should be fairly compensated
for their role in the creation and delivery of music to
audiences.
I see young musicians give up their dreams every single day
because they cannot make a living doing the thing they most
love, the thing they just might be on the planet to do. They
deserve our encouragement and respect. Musicians and artists of
all kinds should be valued members of American society;
compensated fairly for honest hard work.
I believe we can find solutions so that artists and
musicians can succeed together with both new and existing music
services. And I thank you for this time.
[The prepared statement of Ms. Cash follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Coble. I thank you, Ms. Cash.
Mr. Sherman, let's start with you. You are recognized for
your statement.
TESTIMONY OF CARY SHERMAN, CHAIRMAN AND CEO, RECORDING INDUSTRY
ASSOCIATION OF AMERICA (RIAA)
Mr. Sherman. Chairman Goodlatte and Coble, and Ranking
Members Conyers and Nadler, and Members of the Subcommittee, my
name is Cary Sherman. I serve as Chairman and CEO of the
Recording Industry Association of America, representing such
iconic labels as Columbia, Motown, Capitol, Atlantic; to name a
few.
Our members have worked hard over the past two decades to
build a viable, diverse and consumer friendly digital music
marketplace. Millions of music lovers can find whatever they
want whenever and where ever they want it.
Digital models already account for more than two-thirds of
our revenue and that number is growing. But before the music
marketplace can realize its full potential, there remains
serious systemic issues to address. Records are the economic
engine that drives the entire music industry. It's the
recording invested and marketed and promoted by record labels
that produces real revenue for the songwriter, for the artist,
for broadcasters, for digital music services.
Record labels invest not just the financial capital but
their human capital, years of experience and expertise from the
likes of Clive Davis, Jimmy Iovine, Mo Ostin, who work with
artists to bring out their very best, resulting in music that
not only captivates fans but also drives revenues for the
benefit of everyone in the music value chain.
Yesterday, we released a report on the investments in music
made by major record companies. In embracing digital
distribution, record labels have revolutionized the business
and streamlined their operations all while revenues have
plummeted. Even in tough times, however, has a percentage of
U.S. net sales revenue over the last decade major label
payments for artist royalties have increased by 36 percent and
mechanical royalties for songwriting have increased by 44
percent.
Impediments to licensing impact the ability of record
labels to sustain the investment that benefits the entire music
ecosystem. Today's antiquated, complex and time consuming
licensing regime undermines that system. And that's why we
believe music licensing must be fixed, because behind the
seamless experience provided to consumers lurks an inefficient
and frankly broken system.
We've got to rethink it. Here is what we suggest. First,
grant a broadcast performance right for sound recording. It is
frankly inexcusable that the U.S. still provides a special
interest exemption for the benefit of AM/FM radio broadcasters;
a subsidy which is taken out of the pockets of artists and
their record labels. It's time for that to end.
Second, make sure artists who are recorded before 1972 are
paid. Because sound recordings are covered by Federal law after
February '72 and State law before that date, some of our most
cherished artists are not being paid by businesses who take
advantage of the compulsory licenses. We are extremely grateful
to Representatives Holding and Conyers and their other
cosponsors who are proposed to RESPECT Act to fix this anomaly.
Third, allow rights to be bundled and administered
together. Owners of every other type of copyrighted work are
able to license all the copyrights necessary for all uses. A
movie streaming service doesn't have to go to one entity to
license the performance and a different entity to license the
making of a server copy so it should be a musical works.
Fourth, create an across-the-board market-based rate
standard. It goes without saying that every right sold, it
deserves fair market value for their work. We should have one
fair market value rate standard for uses of all music that
remain under a compulsory license.
Finally, consider a one-stop-shop for musical work
licenses. We have filed with the copyright office an idea
laying out one possible way to license musical works in this
manner. It is a potential path toward simplifying the
complicated way musical works must be licensed today. But we
also understand, as we stated repeatedly in our submission,
that no revision to the music licensing regime can move forward
unless publishers, songwriters and all the relevant
stakeholders in the music community, come to a solution on
which they agree.
The goals of any solution should be to align the economic
interests and incentives of music creators; ensure that
songwriters and publishers receive a fair portion of revenue
from the licensing of the sound recording; avoid competition
between record labels and music publishers for the same dollars
from licensees; speed the licensing process, making it quicker
and easier for consumers to enjoy new music services; and make
royalty payments to songwriters and publishers more efficient
and more transparent. We welcome the opportunity to engage with
our music industry partners on our idea, as well as on any
other ideas they may have to improve the status quo.
The music business has reinvented itself but our work is
not done. We hope by working together with music industry
colleagues that we can find the consensus necessary to simplify
music licensing and ensure that all creators are paid fairly.
Thank you.
[The prepared statement of Mr. Sherman follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Coble. Thank you, Mr. Sherman.
Mr. Warfield?
TESTIMONY OF CHARLES M. WARFIELD, JR., JOINT BOARD CHAIR,
NATIONAL ASSOCIATION OF BROADCASTERS (NAB), AND SENIOR ADVISOR,
YMF MEDIA
Mr. Warfield. Thank you. Good morning, Chairman Coble,
Ranking Member Nadler----
Mr. Coble. Mr. Warfield, pull your mic closer to you, if
you will.
Mr. Warfield. Good morning, Chairman Coble, Ranking Member
Nadler, and Members of the Subcommittee.
My name is Charles Warfield and I am the Joint Board Chair
of the National Association of Broadcasters. Over my 37-year
career in and around broadcasting I have served as President in
one of the country's first wholly minority-owned radio station
groups. I ran the day-to-day operation of some of America's top
radio stations and I've even worked as an executive at a record
label.
Over that time, I learned that broadcasters serve our
listeners in many beneficial and significant ways. Radio
broadcasters inform, educate and alert listeners to important
events, topics and emergencies. We introduce them to new and
old music. We entertain them with sports, talk and interviews.
We are local, involved in our communities and serve the public
interests. For those reasons, I am proud to testify today on
behalf of the thousands of free, local, over-the-air radio
stations across the United States.
Supreme Court has repeatedly held that the core objective
of copyright law is a public good. Not the creator's interest,
not the user's interest, but the interest of the public at
large. Unfortunately, in testimony before this Committee, some
are arguing for fixes to copyright law that serve a very
different goal; ensuring that their individual constituencies
receive greater compensation at the expense of both music
licensees and listeners. Nowhere in their arguments do they
emphasize the need for balance, the interest of consumers, or
enhancements to competition; any one of which would promote the
public good.
In contrast, stepping back from any one piecemeal
legislative proposal before this Subcommittee, it is clear
that, taken as a whole, the time-tested laws that govern the
relationship between the music and broadcast industries promote
the public good in three important ways.
First, the existing law has enabled a locally focused radio
industry that is completely free to listeners. Anyone with an
AM/FM antenna can access our programming completely free of
charge, especially in times of emergency when other forms of
communication fail. Radio is unique among entertainment mediums
in that there is no subscription, no broadcast package or
expensive wireless data connection needed for access.
Second, the resulting popularity of radio has significantly
contributed to a U.S. recording industry that is the envy of
the world, both in terms of size and scope. While U.S.
copyright law may contain some critical differences from its
international counterparts, those differences have fostered the
largest recording industry in the world. One that dwarfs that
of the U.K., Germany, France, and Italy combined. Our unique
system of free airplay for free promotion has served both the
broadcasting and recording industry as well for decades to the
benefit of listeners.
The fact is, in all 37 years of my career, I have never had
a record executive come to my station and say, ``Why are you
playing all of my music?'' I have never had a promotion
department refuse to provide us with their newest record the
day it comes out. They show up at radio where they see the
value and realize that we have the greatest promotional tool
for their artist. And we're happy to provide them with that.
Third, and most importantly, the community-based nature of
local broadcasting has driven our industry to extraordinary
levels of public service. For example, in the wake of Hurricane
Sandy, New York City's WQHT, HOT 97, put its music on hold and
broadcast steadily throughout multiple power outages, providing
them much needed connection to lifesaving news and information.
Then, in the days following, HOT 97 ran continuous
informational announcements providing critical information
about disaster relief locations and assistance. Further, its
Hip-Hop Has Heart Foundation provided blankets, clothing, HD
radios and essentials to residents of the inflicted areas
throughout the crisis.
This is just one example of our industry's commitment to
service and it is the norm, not the exception. Each of you
knows this as you see the value of the local broadcasters back
in your districts every day. But make no mistake, the unique
community focus of broadcast radio is only enabled by the
current legal framework.
I would urge this Committee to tread carefully and resist
piecemeal changes to law that might disrupt this delicate
balance that has enabled our industry to serve the public good
for decades.
Turning briefly to streaming, I agree with others on this
panel that the current legal framework governing webcasting
imposes obstacles on every corner of the music ecosystem that
currently prevents our businesses from collectively serving the
public good. Today, whether you are a large broadcaster or
small broadcaster, the revenue that can be generated from
streaming simply does not and cannot offset the costs, so many
of our members simply do not do it. I urge this Subcommittee to
focus this music licensing review on changes to law that will
promote a sustainable webcasting industry to the benefit of
artists, songwriters and consumers.
In conclusion, NAB stands ready to work with you to ensure
a vibrant and competitive broadcast industry, now and in the
future, that serves the public good.
I am pleased to answer any questions and welcome your
invitation for me this morning. Thank you.
[The prepared statement of Mr. Warfield follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Coble. Thank you, Mr. Warfield.
Mr. Van Arman?
TESTIMONY OF DARIUS VAN ARMAN, CO-FOUNDER, SECRETLY GROUP,
AMERICAN ASSOCIATION OF INDEPENDENT MUSIC (A2IM)
Mr. Van Arman. Chairman Coble and Ranking Member Nadler and
Members of the Subcommittee, thank you for inviting me to
testify today on behalf of the small and medium-sized
businesses that make up the American Association of Independent
Music, A2IM.
I am Darius Van Arman and I am an entrepreneur. I am the
Co-Founder and Co-Owner of Secretly Group, a group of
independent labels headquartered in the mid-West of the United
States. We currently employ 70 U.S. employees. We have multiple
gold albums and singles, and one of our recording artists, Bon
Iver from the State of Wisconsin, has won multiple GRAMMYs. I'm
also on the board of A2IM, a not-for-profit trade organization
representing over 330 independent record labels of all shapes
and sizes from all over the U.S. from Hawaii to Florida.
Our sector now comprises 34.6 percent of the U.S. recorded
music sales market. First and foremost, the American
independent sector wants nothing more than a free market with a
level playing field. However, there is one thing standing in
our way: Big companies using their power and resources to take
what is not fairly due to them.
Large technology companies use our music but, because of
the safe harbors our current copyright law provides to them,
artists, creators, and independent labels are not being fairly
or adequately compensated. Broadcasters are not paying anything
at all to broadcast their sound recordings on AM/FM radio. This
is not only unfair to us on the creator's side, but it is also
unfair to those digital services who do pay creators. And,
within our music industry, there is one imbalance that is the
primary threat to musical creative enterprise: Market
concentration.
Today, just three major label groups exist comprising about
65 percent of the U.S. recorded music sales market based upon
copyright ownership, the largest two of which are subsidiaries
of foreign corporations. Congress intended the copyright would
stimulate new creative works for the public interest for
consumers. It did not intend to enable just a handful of
private interests the ability to make huge profits unfairly on
the backs of creators.
While we like the idea of a comprehensive approach to music
copyright legislation, this music bus must be driven by all
members of the music creator community; not steered by just a
few major private interests toward only their goals.
So what do we need? We need stronger copyright protections.
The shape of copyright law now is currently subsidizing large
technology companies.
We need a broadcast performance right. Broadcasters must
fairly compensate all creators so the creation process can
continue. A broadcast performance right will also give us
international reciprocity and the receipt of overseas radio
royalties which will improve America's balance of trade.
We need more transparency and more efficiency in our music
licensing system. Our industry can't afford to unfairly take
value away from artists, creators and those who invest in these
creators.
Finally, we need a stronger compulsory statutory license
for non-interactive performances as it is the best friend of a
level playing field.
Creator pay must be based on actual music usage. The
current music licensing system is broken. It provides
incentives for the wrong behavior. Large companies take
advantage of whatever inefficiencies exist in the marketplace
to make an extra buck.
So we need copyright law revisions that do the following:
Increase the value of music; make copyright more equitable;
reduce inefficiencies; and enable creators to create what
consumer's desire. Our sincere hope is that we can come to
these revisions in partnership with all industry participants.
The vast majority of small and medium enterprises that
comprise the independent sector are American companies
employing American citizens in American offices and directly
supporting American creators. Almost every dollar that is
earned by an independently owned copyright has a much greater
impact on the U.S. economy than every dollar earned by a
foreign-controlled major label copyright. Congress and the
copyright office should keep this in mind when it contemplates
copyright law revisions. As American copyright law should inure
primarily to the benefit of American consumers, American
creators and American enterprises.
In the end, all the independent sector wants is a free
market with a level playing field. We want to compete to
provide the economic growth and job creation that our American
economy needs. Thank you.
[The prepared statement of Mr. Van Arman follows:]
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__________
Mr. Coble. Thank you, Mr. Van Arman.
Mr. Christian?
TESTIMONY OF ED CHAIRMAN, RADIO MUSIC LICENSE COMMITTEE, INC.
(RMLC)
Mr. Christian. Mr. Chairman, Ranking Member Nadler, and
Members of the Subcommittee, my name is Ed Christian and I'm
Chairman of the Radio Music License Committee, the RMLC.
The RMLC has been in existence for well over 50 years and
is a non-profit that represents some 10,000 local radio
stations in the United States with respect to music licensing
matters. Over the years, the RMLC has been involved in
extensive music license negotiations with the two largest
performing rights organizations, ASCAP and BMI.
The mission of the Radio Music License Committee has always
been to provide a competitive market for music licensing in
which radio station operators pay a fair price for performance
rights and copyright owners receive equitable compensation. The
RMLC has historically achieved fair and reasonable licenses for
the radio industry with ASCAP and BMI through our combination
of industry-wide negotiation and, as necessary, Federal rate
court litigation. While recently, the RMLC has found itself
involved in antitrust litigation involving the smallest of the
performing rights organizations in the U.S., SESAC, in order to
curb this company's anti-competitive licensing practices.
I will start by saying, unequivocally, that licensing
redistribution concepts that rely upon the radio industry for
funding are misguided. With particular reference to the
recurring demand by the recording industry for a sound
recording performance right to be imposed upon terrestrial
radio, please understand that the radio industry is not some
vast pot of riches that can be tapped as a bailout for a
recording industry that has failed to execute a digital
strategy that addresses a decline in its own brick and mortar
income.
Congress unambiguously intended that, in exchange for
unique promotional support afforded record labels and artists,
terrestrial radio should be treated differently from other
transmission platforms. That premise has not changed.
Local radio station operators are responsible for obtaining
licenses for the public performance of copyrighted musical
works. For the vast majority of operators, this equates to a
blanket license that permits a station to air music from a
particular PRO's repertory without having to account for actual
usage. Traditionally, the administrative benefits of a blanket
license has outweighed antitrust aspects associated with a
structure that permits PROs to aggregate music works in a way
that has the hallmarks of a monopoly.
Given the large scale of the radio industry, the RMLC
believes that a retention of collective licensing in some form
is efficient and advisable. In this regard, the independent and
experienced Federal judges, associated with the ASCAP and BMI
rate courts have been able to deliver appropriate rate-setting
oversight. A purely free market approach to music licensing,
coupled with the absence of consent decrees monitored by the
Department of Justice, would invite market abuse and represent
a step backward from a system that has served parties well for
decades. Indeed, the fact that there are currently two
antitrust cases against SESAC in Federal court is a testament
to what has happened in the absence of government supervision
of entities that wield the leverage of aggregated musical works
combined with a club of statutory penalties for copyright
infringement.
Now, if Congress is dedicated to bold reform, it could lead
to process efficiencies and enhanced royalty payment to
creators. It might want to explore the prospect of a super
licensing collective along the lines of what has already been
proposed by other stakeholders. Outside of Brazil, it is hard
to identify another country in the world that supports multiple
licensing entities that administer a single right such as the
public performance right in the musical composition.
The fact that the U.S. continues to maintain three
organizations for this purpose, ASCAP, BMI and SESAC, sets up
an enormously complicated and redundant licensing system and
likely guarantees precious royalty payments due creators are
being diminished in their journey from the licensee to the
copyright owner. Indeed, this example doesn't even account for
the role of other licensing agencies such as the SoundExchange
and The Harry Fox Agency that further contribute to the music
licensing morass.
Before we simply attribute the perceived economic
injustices ascribed to creators of musical works to the level
of fees paid by music users, the radio industry, we really need
to carefully scrutinize the royalty distribution process that
dictates how and what creators are paid relative to incoming
license fees.
The RMLC brings longstanding and professional expertise to
the table, and we stand ready to work with other stakeholders
in fashioning a pragmatic music licensing regime that is fair
to all and preferential to none.
Thank you.
[The prepared statement of Mr. Christian follows:]
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__________
Mr. Coble. Thank you, Mr. Christian.
Mr. Williams?
TESTIMONY OF PAUL WILLIAMS, PRESIDENT AND CHAIRMAN OF THE
BOARD, AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS
(ASCAP)
Mr. Williams. Good morning, Chairman Coble.----
Mr. Coble. Mr. Williams, pull that mic closer to you, if
you will.
Mr. Williams. There we go.
Good morning, Chairman Coble and Goodlatte, Ranking Member
Nadler and Conyers, and Members of the Subcommittee and
visiting members of the larger organization. My name is Paul
Williams and I am a songwriter, I am an American songwriter. I
also have the great pleasure and honor of being President and
Chairman of the Board of the American Society of Composers,
Authors, and Publishers. We are ASCAP.
In 1914, the small but visionary group of American
songwriters had an idea. They believed they could protect their
rights as music creators more effectively if they joined
together rather than going it alone. So thank God they formed
ASCAP.
Today, more than 500,000 songwriters, composers and music
publishers trust and depend on ASCAP to negotiate licenses,
monitor public performances, and distribute royalties all on a
not-for-profit basis. I will repeat that: On a not-for-profit
basis.
I'm honored to appear before you today to speak on their
behalf. We're here today because technology is changing to the
world in wonderful ways. We're moving into a world where people
no longer own the music they love, they stream it whenever and
wherever they want. At the same time, the Federal regulations
that govern how music is licensed and thus how songwriters,
like myself, are compensated for our work, do not reflect the
way people listen to music today. In fact, they are stuck in
the distant past and it's threatening the very future of
American music.
ASCAP is governed by a consent decree created in 1941 and
last updated in 2001. That's, incidentally, before the iPod
ever hit a store. We all know the music marketplace has changed
dramatically since then and sadly new music services are
finding ways to take advantage of this outdated regulatory
system. Consider the fact that it takes one million streams on
Pandora for a songwriter to earn $90; nine, zero dollars.
For some perspective, one of the most popular songs in 2011
was Lady Antebellum's wonderful hit, ``Need You Now.'' For 72
million streams on Pandora, the four songwriters earned less
than $1,500 apiece. Meanwhile, record labels and artists often
earn 12 to 14 times more than songwriters for the exact same
stream.
Such an imbalance would not happen in a free market where
real competition exists and songwriters have more of a say over
how our music is licensed, how our music is licensed. But under
the current consent decree, songwriter compensation reflects
the true value of our work less and less even as our music is
performed more and more.
There is now a very real risk that major publishers will
withdraw from ASCAP and BMI entirely. As a result of that,
voluntary collective licensing could soon collapse. It would
make the system more complex, more inefficient, and more
expensive for everyone including music fans, the people that
love our music, unless we do something to fix it.
Now I sit here surrounded by representatives of multi-
billion dollar corporations that profit from our songs and I
find it beyond perplexing that American songwriters, like
Rosanne and myself, are the ones subject to the heaviest
government regulation. Be that as it may, I believe that all of
us working together to modernize the music licensing system
will allow songwriters and composers to thrive alongside
businesses that revolve around our music. We want you to be a
giant success. You are delivering our songs to the world.
To that end, we're proposing several updates to our consent
decree with the Department of Justice. We believe these updates
can save voluntary collective licensing from the serious risks
facing it to the benefit of music users, consumers, and
creators alike. First, we need a faster, less expensive process
for settling rate disputes with businesses that use music; one
that considers independent agreements reached in the free
market as benchmarks.
Second, songwriters need flexibility to manage our own
rights. We should be allowed to grant ASCAP the right to
license our music for some uses while maintaining the right to
license other uses directly ourselves. It's our music. Doing so
will foster greater competition in the marketplace.
Finally, we can streamline the licensing process for
thousands of music creators and users by giving ASCAP the
ability to license all of the composition rights that business
needs to operate their music in one transaction. Passage of the
Songwriter's Equity Act, introduced by Representatives Collins
and Jeffries for which we are most grateful, is another crucial
piece of this puzzle. It is a simple and reasonable fix which
will enable the court to consider sound recording royalty rates
as evidence when establishing songwriter royalty rates.
Working together to make these changes, I'm confident we
can preserve the immense benefits of voluntary collective
licensing. This will benefit businesses that license music and
listeners who enjoy it while ensuring that songwriters,
composers, and music publishers are compensated for the true
value, for the true value, of our music the true value our
music brings to the marketplace.
Thank you for the opportunity to share this with you today.
Thank you so much.
[The prepared statement of Mr. Williams follows:]
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__________
Mr. Coble. Thank you, Mr. Williams.
Mr. Harrison?
TESTIMONY OF CHRIS HARRISON, VICE PRESIDENT, BUSINESS AFFAIRS,
PANDORA MEDIA INC.
Mr. Harrison. Thank you, Mr. Chairman, Ranking Member
Nadler, Chairman Goodlatte, Ranking Member Conyers and the
other Members of the Committee. Pandora appreciates this
opportunity to testify at this important hearing.
Without question, Pandora is delivering tremendous value to
listeners, artists, songwriters, and the music industry. 77
million listeners tuned into Pandora last month and listened
for an average of 22 hours. Every month Pandora performs more
than 1.5 million songs by more than 100,000 recording artists,
80 percent of whom were not played on terrestrial radio.
Pandora contributes hundreds of millions of dollars to a
new royalty stream for artists that did not exist 20 years ago.
Just 9 years after launching, Pandora will celebrate a major
milestone later this summer; $1 billion in total royalties
paid.
As this Committee considers opportunities to improve music
licensing, Pandora hopes the Committee will appreciate the
essential aspects of our current system of statutory blanket
licenses, including the consent decrees which encourage
innovation through simplified licensing procedures, protect
music users from the anticompetitive behavior of big copyright
owners, and ensure that artists receive their fair share of the
hundreds of millions of dollars in royalties that services like
Pandora pay each year.
In today's highly concentrated music industry, with
fragmented and opaque copyright ownership, statutory blanket
licensing is the most efficient means for digital music
services to license the millions of copyrights owned by tens of
thousands of copyright owners and are necessary to offer a
compelling service to consumers. As the Future of Music
Coalition recently stated, ``The incredible growth of Internet
radio would have been inconceivable had fledgling webcasters
been compelled to negotiate with all the music publishers
individually. Without an easier way to obtain permission to
play songs, Internet radio might never have happened.''
That being said, Pandora's recent experience reflects the
very real and continued anticompetitive behavior of major music
publishers in the performing rights societies reflecting a
continued need for government protection.
As concluded by the Federal judge who oversaw Pandora's
rate proceeding with ASCAP, ``The evidence at trial revealed
troubling coordination between Sony, Universal Music
Publishing, and ASCAP, which implicates a core antitrust
concern underlying the ASCAP consent decree.''
Statutory blanket licenses provide important transparency
into how royalty payments are calculated and enable direct
payment to recording artists and songwriters. Without them, the
royalty payment process would be controlled by record labels or
music publishers where un-recouped advances are deducted and a
smaller percentage of the royalty, if any, is passed through to
the artist.
While Pandora believes that statutory blanket licensing
should remain a central feature of copyright law, Congress can
improve the efficiency of determining the reasonable fees for
such licenses. For example, several respondents to the
Copyright Office's recent notice of inquiry noted the expense
and burden of the current Copyright Royalty Board rate-setting
process, highlighting: number one, the need for the application
of the Federal Rules of Civil Procedure in evidence; two, the
establishment of the unitary proceeding with ample time for
discovery and presentation of evidence; and three, the
application of the so-called 801(b) standard.
We would also recommend, in order to foster greater
transparency, the creation of a single database of record,
hosted by the Copyright Office in housing all relevant
copyright ownership information. Participation need not be
mandatory, but Congress could incent robust participation. For
example, just as Chapter 4 of the Copyright Act prevents a
copyright owner from seeking statutory damages unless the work
at issue is registered, Congress could include a requirement
that entitlement to statutory damages would be contingent on
registering and keeping accurate ownership information in this
database. This would help prevent copyright owners from holding
services, such as Pandora, hostage during negotiations;
something we experienced directly in 2013 when a handful of
major publishers threatened our business with massive copyright
infringement penalties while refusing to disclose their
repertoire.
In addition to enabling services to quickly ascertain who
owns which rights to a work, a single database of record would
also enable services to identify the owners of the songs it
performs, which would encourage real competition among
copyright owners for distribution across all platforms.
It is important to note that while transparency would help
mitigate anticompetitive behavior, it would not alleviate such
abusive practices entirely. That's why the protection of
statutory blanket licensing and the consent decrees must be
preserved.
Thank you and I look forward to answering your questions.
[The prepared statement of Mr. Harrison follows:]
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__________
Mr. Coble. Thank you, Mr. Harrison.
Mr. Huppe?
TESTIMONY OF MICHAEL HUPPE, PRESIDENT AND CEO, SOUNDEXCHANGE
INC.
Mr. Huppe. Mr. Chairman and Members of the Subcommittee,
I'd like to start by telling the Committee something you
probably don't hear very often: Congratulations to Congress on
getting it right.
For over 10 years now, SoundExchange has administered the
statutory license for sound recordings on digital radio that
this Committee created in 1995. And that decision shines as a
true legislative success story. It provides transparency and
efficiency that makes possible the digital radio services
enjoyed today by over 100 million Americans. It has led to a
critical and growing revenue stream for SoundExchange's 100,000
accounts which represent featured artists, background
musicians, labels and rights owners large and small.
And the statutory license has provided a huge commercial
benefit to the 2,500 services who have used it to build their
businesses, some of America's best known and fastest growing
companies with household names, like Pandora and SiriusXM,
providing them easy access to the product they needed to get
off the ground.
Congress greased the tracks, removed the barriers to entry,
and a bourgeoning multibillion industry grew. And while you've
heard many parties discuss problems elsewhere in the industry,
Mr. Chairman, everyone, everyone connected with the
SoundExchange world, which includes the entire recorded music
side of the business, artists, labels, unions, even the digital
services themselves, everyone, uniformly supports the
fundamentals of this system.
But as we move forward, there was one core principle that
should guide everything we discuss and that is this: All
creators should receive fair pay on all platforms whenever
their music is used; period. Everyone who has a hand in the
creation of music deserves fair market value for their work.
And I mean everyone, Mr. Chairman; songwriters, publishers,
studio producers, and engineers. The artists who give
compositions life and record companies who help artists fill
their creative vision. Fair pay would ensure justice for
creators, whose contributions form the soul of these services;
fair pay would level the playing field for radio services; and
fair pay would ensure a healthy vibrant ecosystem for listeners
and fans.
With that guiding principle, I would like to propose a few
modifications to make the good system work even better. First,
Congress must address the current royalty crisis facing legacy
artists with recordings made before 1972. The refusal of some
radio services to pay royalties for this era of music makes no
sense as a matter of policy and is surely not what this
Committee intended when it created the digital radio license.
It is just wrong to pay nothing to artists who created the most
iconic era of music in American history.
And on behalf of SoundExchange and all of the artists we
represent, I extend our thanks to Congressmen Holding and
Ranking Member Conyers and all of the Members on this Committee
who have joined them in supporting the RESPECT Act. I urge the
Committee to act now on this critical piece, pre-1972 artists,
simply cannot afford to wait.
Second, Congress must ensure that all radio platforms pay
all creators. This means eliminating the ancient and unfair
loophole that allows the $17 billion AM/FM radio industry to
pay nothing for the source of its lifeblood. FM radio uses
music to draw the crowd and make its profits. Yet, it ignores
the performers at the center of its stage. FM's tired and stale
justification for taking advantage of artists rings hollow and
are unfair to other services seated with me here today.
And third, Mr. Chairman, once all platforms start paying
creators, they should pay according to the same fair market
standard. It makes no sense, that similar radio platforms
played by different rules, especially in today's world, where
those platforms may compete against one another in the same
places over the same speakers to the same listeners. To quote
Ranking Member Nadler's opening statement, ``The government
must get out of the business of picking winners and losers in
this industry.'' If we want innovation, the law shouldn't give
favorable rates to some companies or breaks to older formats.
Stated another way, Mr. Chairman: these businesses should
compete based on their legal appeal and economic value not on
the strength of their legal loopholes.
So Mr. Chairman, what would success look like for music
licensing going forward? It would be a system where many of the
challenges we're talking about today would fade into the
background; where the back office would work seamlessly and
invisibly; where we are focused on business models and consumer
offerings rather than rate standards and inequity. Success
would mean a system where the entire music community worked
cooperatively to address these issues for the collective good;
and, most importantly, success would mean a system based on the
guiding principle that I set forth earlier, all creators
receive fair pay on all platforms whenever their music is used.
In closing, Mr. Chairman, the American music industry
represents some of our best talent and our most cherished
assets. All we're asking for is something pretty simple, that
those responsible for bringing these treasures to life be
treated fairly when someone else profits off of their work.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Huppe follows:]
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__________
Mr. Coble. Thank you, Mr. Huppe.
Mr. Frear?
TESTIMONY OF DAVID J. FREAR, CHIEF FINANCIAL OFFICER, SIRIUS XM
HOLDINGS INC.
Mr. Frear. Chairman Goodlatte, Chairman Coble, Ranking
Members Conyers and Nadler and Members of the Subcommittee,
thank you for the opportunity to testify today. My name is
David Frear. I am the Executive Vice President and Chief
Financial Officers of SiriusXM.
SiriusXM is one of the largest radio providers in the
United States. We have over 25 million subscribers, subscribers
residing in every congressional district in the continental
U.S. and we employ 2,100 people around the nation.
SiriusXM is well positioned to offer testimony on these
copyright issues. In 2013, we paid approximately $325 million
in royalties to record companies, publishers, songwriters, and
artists. We have paid over $1.8 billion in music royalties
since we launched service 11 years ago.
I'd like you to take away four key themes from my
testimony. First, parity. Radio is radio whether it is AM, FM,
satellite or Internet radio. All radio companies should pay for
the music they use on the same basis; no exceptions. Continuing
to exempt the terrestrial radio companies that dominate radio
listening with over 90 percent of the market and generate over
15 billion in revenue is bad policy. Copyright law does not
distinguish between AM and FM radio based on technology and it
should not distinguish between AM/FM, satellite or Internet
radio either, based on technology.
Second, today's Copyright Act creates an unfair digital
disadvantage. Drawing any distinction based on the claim that
some radio services are digital while others are not, is based
upon the false premise and produces a distorted result.
Terrestrial radio began broadcasting digital signals over a
decade ago and they have routinely made digital copies in the
ordinary course in their broadcast operations since the 1980's.
Similar services, regardless of the mechanism or medium through
which they are delivered, should be treated similarly. With
each rate-setting proceeding, the digital disadvantage between
terrestrial radio and other radio services just gets wider. The
two pending bills, the Songwriter Equity Act and the RESPECT
Act, will only further widen this digital disadvantage.
Third, protection from market power. The music business has
never been more concentrated than it is today. Three companies
control nearly 90 percent of the market for distribution of
music. The same three companies control nearly 70 percent of
the music publishing market. Two PROs control over 90 percent
of musical performance rights and one collective controls the
sound recording performance rights.
The consent decrees are crucial to protecting against
noncompetitive rate demands. The consent decrees do not
interfere with competition, they prevent activities that would
otherwise constitute clear violations of the antitrust laws.
Recent attempts by copyright owners to partially withdraw from
ASCAP or BMI, in an attempt to cherry-pick entities who are
relying on their PRO licenses for access to those publisher's
works, are troubling; especially in light of the publisher's
refusal to provide the catalogue data that would allow the
services to remove the catalogue from the air in the event they
couldn't reach agreement on the fees.
Fourth, and finally, fair rates. The willing buyer, willing
seller standard can have meaning only where marketplace
transactions reflect the workings of an actual free market.
There is no functioning free market in music licensing because
of the unprecedented concentration in the music industry and
the aggregation of power in the PROs. Congress should, instead,
adopt the 801(b) rate-setting standard for a broad array of
music licensing purposes. That standard provides the Copyright
Royalty Board with wide latitude to ensure that both copyright
owners and users are treated fairly, including potential new
users, like terrestrial radio.
The 801(b) standard is also a matter of simple fairness.
Congress adopted that standard in recognition that services
subject to those standards founded their services at a time
when there was no sound recording performance right at all. To
change the standard now would fundamentally undercut the
reliance interest of those services.
So in summary, while the $15 billion AM and FM radio
industry pays the PROs approximately $300 million per year,
they do not pay a penny for sound recording performances. By
comparison, radio companies, like Pandora and SiriusXM, are
less than one-third the size of AM and FM in terms of revenue.
Yet, we'll pay more than two and a half times, nearly $800
million, in music royalties this year. It is simply bad public
policy to reward the biggest entities in the radio field with a
competitive cost advantage while penalizing innovation and
emerging services that increase economic activity and create
jobs.
As you consider new legislation, it is my hope that you
will recognize the unbalanced playing field for the music
licensing today and craft an equitable and durable solution.
I thank you for the opportunity to testify.
[The prepared statement of Mr. Frear follows:]
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__________
Mr. Coble. Thank you, Mr. Frear. I appreciate that.
I want to thank the panelists for no one abused the 5
minute rule. And for that I am appreciative to you. We try to
comply with the 5 minute rule too. So if you all could keep
your responses as tersely as possible, we would be appreciative
to you.
Ms. Cash, let me start with you with a simple question but
I think it may be pertinent. Do you believe that the music
licensing system should be set up in such a way that makes it
easier, or at least more simple, for artists to understand they
are being paid and who is paying them?
Ms. Cash. I do.
I think that transparency is essential and that the lack of
transparency is a huge part of the problem. For instance, there
was a petition going around not long ago from Pandora asking
musicians to sign. And it was very enthusiastic about how that
would benefit us. We found that to be somewhat manipulative not
transparent. And, in fact, they lobbied for lower rates for us.
So fans are confused, which they are, they come to me all the
time and say, ``How do I buy your record? What is the decent
thing to do? How can I support you so you keep making
records?''
Then, if they are confused and we are a bit confused, I
think transparency would go a long way toward clearing some of
this up.
Mr. Coble. Ms. Cash, you opened the transparency door, so
let me walk through that door. And I'm going to put this
question, if you will, if I may go to Mr. Harrison and Mr.
Williams.
Transparency is a word this Subcommittee has heard
repeatedly quite a bit including transparency in copyright
ownership, transparency in who pays what and transparency in
how royalties are divided. How should the Congress, in your
opinion, consider the issue of transparency as we consider
potential changes to our music licenses laws? Is transparency
just as important and vital as other issues?
Start with you, Mr. Williams, then follow, Mr. Harrison.
Mr. Williams. Mr. Chairman, I apologize my hearing is a
little bit up but if I get the gist of what you said, and my
hearing is not the best, but----
Mr. Coble. Nor is mine so I can relate to that. [Laughter.]
Mr. Williams. To answer your question, I think, as much as
I could hear, was related to transparency. And ASCAP is very
proud of our transparency. We have a database for our members.
If the Love Boat theme that I wrote is being played in
Lithuania right now, I can jump online and find out that it is
being played.
I have to disagree with Mr. Harrison. I think he was
perhaps misinformed in something of what evolved in the Pandora
case with Sony. I want to straighten that out, first of all. We
are very proud of the fact that we are open and transparent on
all cases.
When Pandora requested information on licenses, for
example, the 2 days before the end of their trial, we
immediately gathered that information. And, after 2 days, when
we had it all together, we reached out to Pandora and said,
``Would you like this information?'' We never heard back from
them. I understand the communication in a multimillion dollar
organization sometimes is not the best. Perhaps that didn't
reach the head office but we had the information that they
wanted and we have it today. And have to tell you, Mr.
Chairman, that I believe that any licensee that we do business
with has the right to know what they are getting for their
money. So we have that information; it is open and available.
We are proud of our transparency on all levels and
incidentally there was never any finding of any improper
coordination between ASCAP and any of the publishers. If there
had been, I'm sure that the very capable judge would have
brought it to our attention and would have filed on it. There
was never any such filing.
Mr. Coble. Thank you, sir.
Mr. Harrison?
Mr. Harrison. Yes.
Transparency is a key part, as Mr. Frear indicated to any
free and competitive market; the ability for users to
understand who owns the content that is supposedly being
licensed; and our ability to access that information.
With due respect to Mr. Williams, I don't want to get into
a debate about what happened in a trial. There is a 136-page
opinion that is very detailed by Judge Cote. And if the
Chairman would like it, I'm happy to provide it for you.
Mr. Coble. Let me try one more question before the red
light appears.
Mr. Sherman, with the world going digital and the need to
update our laws for the digital age, is the time to finally
resolve music licensing issues, once and for all, before us?
Mr. Sherman. Definitely.
The opportunity has never been greater. It is when the
system is in crisis that there is an actual opportunity to
bring people together to actually try and make a difference.
That time seems to be now.
Mr. Coble. Anybody else want to add very briefly to that?
I will open the door, if you will, because my red light is
about to illuminate.
I recognize the distinguished gentleman from New York, Mr.
Nadler.
Mr. Nadler. Thank you very much.
Let me just say, first, before I begin, some questions that
we have heard a lot of testimony today. We have heard testimony
about the advantage of the, what do you call it, the free air
play for free promotion system has served the industry, has
served everybody well and it is, you know, it is a good thing.
Let me say I find that argument incredible. In a capitalist
system, it may be somebody's judgment that not paying people
for their performances because they get compensated through
promotions, et cetera. That may be a judgment, it may be
correct, it may be equitable. But, it should be the decision of
the person whose services are being broadcast.
You will not go into a store and say, ``I decide that the
price of that is fairly such and such and, therefore, I am
going to take it for that price.'' Someone who performs cannot
be told that--I don't see how, in any rational or fairness
system can be told that we have decided that for all these
reason, you should be happy with just promotion. I don't see
how equitably or morally anybody has the right to make such a
decision, and certainly not Congress.
And so, all the arguments based on that, are just simply
non-starters; as far as I am concerned. Lots of debate on
everything else, and balancing considerations, but there is no
balance for saying we are going to take your work and not pay
for it. That is not a balance. It is not a consideration.
Mr. Huppe, many have said that it is time for unified
comprehensive approach to address the licensing problems of the
music industry. Do you agree and, if so, what steps should
Congress take to help bring that about?
Mr. Huppe. Yes, Mr. Nadler.
First off, thank you for your comments on promotion. I
could not agree more with your thoughts on that. The concept
that the broadcasters believe they can take that right and not
pay for it is as ludicrous as suggesting that a book can be
made of a movie and yet the author of the book does not have to
be compensated, or that the NFL can broadcast games on national
TV but, yet, the NFL doesn't have to be compensated.
In terms of unification, I agree with you. We do need to
streamline the system of licensing. One of the benefits of the
statutory license that SoundExchange operates under is that it
is a system that is transparent and efficient. We are the most
efficient at what we do. Ninety percent of the royalties that
come into our shop are out the door within 75 days, and we have
the lowest admin rate. So having a coordinated streamline
licensing system is absolutely urgent.
Mr. Nadler. Thank you.
And briefly, how has the lack of a public performance right
for terrestrial radio impacted artists and the overall music
marketplace?
Mr. Huppe. Artists are losing the tune hundreds of millions
of dollars over the course of the past several years not only
in the United States where radio makes $17 billion but
compensates artists zero, but they also lose royalties overseas
where----
Mr. Nadler. There is a lack of reciprocity.
Mr. Huppe. Lack of reciprocity.
Mr. Nadler. And if they got that money, what impact would
that have in the broadcast industry?
Mr. Huppe. The overseas money or the----
Mr. Nadler. Here.
Mr. Huppe. It depends on what the rate is, Mr. Nadler, but
if they got that money, it would go a long way toward
compensating the artists who deserve to be paid for the central
feature they play in the services.
Mr. Nadler. Thank you.
Ms. Cash, will you comment on that question?
Ms. Cash. I agree.
The idea that I am patted on the head and said, ``Well,
it's promotional, you know, it's good for you,'' I would rather
have control of my copyrights and rather be paid for that. I am
a songwriter, as well. So I live in both worlds. But, the fact
that they can use my songs on the radio, my sound recordings,
to make billions of dollars for themselves and basically use my
work to sell ads, is not only ludicrous it is insulting. And
artists should have control of their copyrights.
Mr. Nadler. Thank you.
Mr. Frear, you said that there is no reason that satellite
radio and Internet radio should pay sound recording performance
royalties while terrestrial radio continues to enjoy and
exemption from that obligation. Should I take it from that,
that you would agree that everyone should get paid or that no
one should get paid?
Mr. Frear. I actually do feel everyone should get paid.
Mr. Nadler. Thank you.
There are different rate-setting standards applicable to
different uses of music. Some are established under the 801(b)
standard, which many argue produce below market rates, while
other rates are set under the market-based willing buyer,
willing seller approach. For example, satellite radio is
subject to 801(b) while webcasting's rates are set according to
the willing buyer, willing selling standards. How are these
differing standards justified? I am not sure who I should ask
that of.
Mr. Sherman. They really shouldn't be justified. Everybody
should be paying on the same rate standard regardless of the
platform on which the music is appearing. It doesn't make sense
to have different standards for different platforms. It is
having Congress pick winners and losers, which is not what
Congress ought to be doing.
Mr. Nadler. Would anyone on the panel disagree with that?
Mr. Williams. If I may, you know, the fact is there are so
many different, it is Paul Williams down here. [Laughter.]
You know, ASCAP licenses many, many different platforms for
our music; radio, television, cable, satellite and, happily
now, Pandora. You know, we operate one of the most efficient
performing rights organizations in the world. We don't operate
at the percentage that you just heard SoundExchange because we
have a much wider group of people that we are servicing with
our music. The fact is that trying to operate under the consent
decree as it exists right now is crippling to us. We operate at
12 percent. At 12 percent, which would come down considerably
if we could be relieved of some of the millions and millions
and millions of dollars we spend in----
Mr. Nadler. I am sorry. What do you mean you operate at 12
percent? 12 percent of what?
Mr. Williams. Let me ask if Pandora will be kind and help
me on this.
At 12 percent is our operate--88 cents of every dollar we
collect goes to our writers.
I am a songwriter so that 12 percent takes care of a large
group of people trying to keep track of everything that is
going on. We do it more efficiently than anybody probably in
the world. We are one of the most efficient. This rigorous
honesty is part of my recovery and a part of my oath today.
But I am proud of the way we operate. But when you look at
a system where, you know, where the recording labels and the
artists receive 12 to 14 times more for the exact same thing we
get, something is broken.
You can do two things for us in Congress. First of all, you
can support our efforts with the Department of Justice and you
can pass the Songwriter's Equity Act which will allow us to go
into court and present both sides of both copyrights and the
information around what they are both being paid. Be huge,
huge.
You know, what Congressmen Collins and Jeffries have
offered is not a comprehensive, it is not going to fix
everything, but it is a beautiful in-road to putting some
balance in the way we operate. We are so grateful for that. And
I think that what we all want is to see, I mean, I want Pandora
to, not survive, I want Pandora to thrive; you know? I mean, I
made albums that even my family didn't buy. I love the idea
that he is going to out there and make it available for anybody
if they might want it.
Mr. Nadler. Thank you.
My time has expired. I yield back.
Mr. Marino [presiding]. Thank you.
Mr. Chabot?
Mr. Chabot. Thank you, Mr. Chairman.
I would first like to ask unanimous consent to insert into
the hearing record, House Concurrent Resolution 16, which is
the Local Radio Freedom Act, which states in part that
``Congress should not impose any new performance fee, tax
royalty, or other charge relating to public performance of
sound recordings on a local radio station for broadcasting
sound recordings over-the-air.''
Local radio stations provide promotion of the music they
play at no cost to the listener. This concurrent resolution has
225 bipartisan cosponsors including myself, which is more than
a majority in the house. And I think it is important to at
least mention, I know we have had some kind of disparaging
remarks about the recording industry from some of our panel
members. I certainly understand that, but I thought that should
be, at least, part of the record. I would also, just a couple
of comments before I get to the question.
Mr. Huppe, I----
Mr. Marino. Without objection, those documents will be
entered into the record.
[The information referred to follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Chabot. Thank you.
Is it Huppe?
Mr. Huppe. Yes. Huppe. Yes, sir.
Mr. Chabot. Okay. I just wanted to thank you. I think we
are at something like 7 percent approval now. And, to say
Congress actually did something right, we don't hear that much
around here.
Mr. Huppe. Happy to oblige.
Mr. Chabot. Oh, thank you very much.
And, Mr. Williams, we have had an opportunity to meet a
number of times over the years you have been here. And you are
a national treasure. You know, thank you for----
Mr. Williams. Thank you very much. Thank you.
Mr. Chabot [continuing]. Everything that you have done to
make life better. You got some amazing songs. Thank you.
Mr. Williams. Thank you.
Mr. Chabot. Let us see.
Mr. Frear, being kind of an old codger, I enjoy some--I
guess Sirius was in our car when we got it. We kept the service
and we enjoy it, especially when you are kind of traveling
around the country.
Mr. Frear. I thank you, Congressman. My daughters thank
you, as well.
Mr. Chabot. Thank you. [Laughter.]
Cousin Brucie, in particular, and Herman's Hermits Peter
Noone, is sort of, you know, we can kind of relate to that. It
is interesting.
And now, I guess one question I always have--this is a very
large panel, we usually have four or something like that. We
have got nine and a lot of interest or recognize--is there any
particular interest that probably should have been added or
that we could have added that didn't? Either it got overlooked?
Anybody have comment on that on the panel? Is there anybody
else that perhaps we could have thought of that didn't get in
or was either overlooked or whatever?
Mr. Huppe?
Mr. Huppe. Yes.
I will say one thing, Mr. Congressmen. We have, obviously,
a large panel here and we have great performing artist
representatives. Obviously, with two artists to our right, one
very important constituency of SoundExchange are actually the
two leading unions in our industry: AFM, the American
Federation of Musicians and also SAG-AFTRA. And the unions
represent, in addition to featured artists another important
group of non-featured artists, background musicians, background
vocalists who also have a very important voice in this debate;
I think.
Mr. Chabot. Okay, thank you.
And during the copyright hearings that we have had, we have
heard the term free market obviously used a lot from every
different side of the debate. I would kind of like to hear how
recording artists view a free market system working. Do artists
believe a free market model to be a better alternative than the
licensing system that we have today? With so much consolidation
in the industry, do you believe it is even possible for music
to truly become a free market?
Mr. Williams?
Mr. Williams. It is exactly what we are seeking. We are
seeking a free market because a free market will dictate, you
know, what something is worth. And the last thing that we need
is less control of our music.
You know, the one area where you can really get a sense of
what the free market is is in sync licenses. Everything else is
basically controlled under our agreement with the consent
decree with the Department of Justice. But if you look at sync
licenses, which are straight ahead free market, it is about a
50/50 split.
In a sense, you know, this is the United States of America,
we can trust business to work things out. And incidentally, I
want to thank Pandora right now. You are getting a classic
example of the two of us working together when I can't hear
what you are asking me and he tells me. And I am actually
trusting that he is telling me the actual question. [Laughter.]
So, you know, the fact is the collectively----
Mr. Huppe. The question is: What is the performance right?
Mr. Williams. You know, I am kind of in a little David and
Goliath moment here. You know, sitting between the giants of
the industry. I left my sling at home. What I brought is the
truth and the truth is I represent 500,000 songwriters,
composers and publishers. I mean, what an honor to share this
time with Rosanne. What we do is reach in to the center of our
chest and, you know, try to write something that will, you
know, that will affect people's lives, it will comfort them in
sad times. You know, all I wanted was to right something that
would make a young lady say yes when I ask her to marry her.
And three times, thankfully, that happened. [Laughter.]
So we can all work together. I can turn to Pandora for help
on all. I think so much for examining this system.
The system is broken. You know, most of our money has
always come from traditional, you know, from bars and grills,
radio, wonderful radio, amazing relationship we have had with
radio through the years. They give us their advertising money
in a fair and a system that we have always been able to work
out. You know, you sit down, roll up your sleeves and you
strike a deal. It is a great way to work in all.
But, the fact is, that the world is changing. People don't
want to own their music anymore, they want to stream it. And
thanks to people like Pandora and Spotify, I can hear my music
anywhere in the world. I can put in my car whenever I like. It
is a wonderful time, it should be the golden age of music. For
the music listener, who is the person we care most about, this
is a time they should celebrate. The stream is a dream, it
should not be the nightmare for the men and women who create
music.
Mr. Marino. Thank you.
Paul, you should have brought the infamous stack of
phonebooks that we talked about a couple of times.
Mr. Williams. Yes, exactly.
Last Friday, I did. I conducted an orchestra for Dick Clark
standing on a bunch of phonebooks, you know. In this room I
would stand on the bible. [Laughter.]
Mr. Marino. Dr. Chu?
Ms. Chu. Thank you.
As Co-Chair of the Creative Rights Caucus, I firmly believe
that artists should be fairly compensated across all platforms
but we know this is not the case in the U.S. In fact, let me
tell you about the story of Janita who provides a contrast
between Finland and the U.S. She is a recording artist
originally from Finland who lived there for her first 18 years,
became a profession singer at a young age in her home country.
She was paid for her performances on the radio in Finland,
which was about a third of her income.
Then, she moved to New York when she was 17 to take the
next steps in her career. She achieved success with having two
Billboard magazine top 40 U.S. radio hits but was shocked to
find out that the U.S. didn't pay artists for radio airplay.
She thought, perhaps, Finland was an exception in paying
artists and that the rest of the world didn't pay artists their
radio royalties. But it turns out that it was the other way
around. The U.S. was the exception in not paying radio
royalties. Well there are two other countries: Iran and North
Korea.
Well, last summer, Janita proudly became a U.S. citizen
but, in doing so, she is now a citizen of a democratic country
that doesn't honor AM/FM radio pay for its artists. And she
suffers a loss of significant income. This is not the American
dream that she envisioned.
Her story shows that we need to fix the disparities in the
current music licensing system to make sure that artists are
fairly compensated. If we don't, we risk losing the innovation
from creators like Janita because they will no longer have the
incentive to create for the public.
And so, I would like to ask a question to Paul Williams.
One area of agreement between you and the music licensees on
the panel appears to be the importance of preserving the
voluntary collective licensing model that ASCAP pioneered. You
have made a compelling case that this is at risk of crumbling.
Clearly, that would be a bad result for music licensees. So
what would that mean for ASCAP songwriters and composers,
particularly, your smaller, independent and up-and-coming
members?
Mr. Williams. Oh, it would be devastating.
First of all, thank you, Congresswoman Chu, for your
advocacy. You have been a great friend to music creators and we
appreciate that.
You know, if things don't change, if the consent decree
isn't modified, our major publishers are looking to withdraw
their rights. And if they do that, it fragments the system; it
becomes more expensive; it becomes less sufficient. I think
what we have to do is we have to look at a very, very quick
adjustment to the system. But, essentially, it needs--the
entire consent decree is, at this point, is--it is not like
going into battle with one hand tied behind your back that you
are going to fight with. It is one hand tied behind your back
that you are going to feed your family with.
Incidentally, as far as the performance and the sound
recording, I absolutely believe that everybody--it is a sad,
sad story to hear of somebody losing their loss of income when
they become an American citizen. We absolutely believe that
everybody that contributes, you know, to the performance of
music, the creation of music, should be honored. But, it is not
an excuse to pay less to the people that create the music,
though. We need to find a balance and I think the trick is to
let the fair market decide that for us.
Ms. Chu. Thank you for that.
My next question is for both Chris Harrison of Pandora and
Rosanne Cash. Last year, Pandora embarked on a campaign to
rally artists to sign a petition to Congress in support of
Internet radio, but it was during the time when the Internet
Radio Freedom Act was being debated in Congress; which would
have actually resulted in a cut to artist royalties. Pandora's
letter to artists stated that they simply wanted to have the
artist's voice heard. And yet, from what some artists
discovered, this was not the actual intent. The implication for
the artist signing the petition, at that particularly time, was
that they were supporting cuts to themselves.
So, Mr. Harrison, can you tell why Pandora enlisted the
help of artists?
And, Ms. Cash, can you tell us what you, in the creative
community felt when this was happening?
Mr. Harrison. Part of my opening remarks I noted that
Pandora plays 100,000 recording artists every month, and 80
percent of those recording artists don't get played on
terrestrial radio. There is, actually, a large group of
independent, primarily recording artists and singer/
songwriters, who do value Pandora because it is the only
outlet, the only distribution platform available for them to
find an audience that loves their music.
Ms. Chu. Ms. Cash?
Ms. Cash. That is what a lot of us are calling the exposure
argument; that we are seduced into thinking if we allow these
performances, without pay that we will get exposure, therefore,
drive consumers to buy our records. That may or may not be
true, but the point still remains that we don't have control
over those copyrights and we are not paid fair compensation. We
are not paid fair market rates.
As I said before, there is no transparency about this. It
is somewhat manipulative. And I feel that we end up subsidizing
these multibillion dollar companies. They use our music as
something like a loss leader to draw people in and they make
the money.
And, to confirm what Mr. Williams said, the place that
artists have the most control are sync licenses. I have given
my songs for free, my choice, to college students making their
first film who want to use my song. That is great. I want to
support them. And then, I have negotiated a fair rate with a
popular television show that wanted to use my song. I have
control over those things and that is the bottom-line. That,
and fair compensation.
Ms. Chu. Thank you.
I yield back.
Mr. Marino. Thank you.
I am going to ask some questions now or, more so, make some
statements and then, hopefully, you can respond.
First of all, I would like to give each member of the
distinguished panel an opportunity to respond to this question,
following question, in writing; if you care to do it? Because
there are too many and we are not going to get through my
couple of minutes. If you would be so kind as to tell me, in
your opinion, what a free market is and what a fair market is,
comparing the two. Because I hear those terms thrown around.
Free market. Fair market.
I asked the last panel to do this and I am asking you to do
the same and get that to me in writing; if you care to do so.
I have been having meetings. My staff and I have been
meeting with people that have a dog in this fight, continually.
We have been doing it for months. If someone has not been
invited to a meeting, please contact my office. I am
Congressman Tom Marino and I'm Vice-Chair of this Subcommittee.
And let us know, because I think we have covered all the bases
but there are many, many people involved in this. I am trying
to get a consensus. I don't want Congress to sit down and have
to sort this out. And I will show you why in a minute.
This is very complex. I have been studying this for months
and talking to many people. And here is the reason why I do not
want Congress to sit down if we can get a consensus among
everyone who has skin in the game. I am going to read to you a
list of those individuals and I probably missed one or two.
These are the parties that we have come to the conclusion that
are involved in this, excluding the public: songwriters; movie
score composers; performance rights organizations, PROs, such
as BMI and ASCAP; royalty collectors for digital music;
SoundExchange; artists/performers; terrestrial radio;
broadcasters; satellite radio; cable TV radio; digital radio;
streaming; digital download; providers like iTunes; record
labels, copyright owners; music promoters; consumers;
listeners; music publishers; collective music organizations;
Music Academy; GRAMMYs; recording engineers; copyright offices;
groups that may hold exemptions such as libraries,
universities, churches; and I am sure I missed someone.
So you see the litany of names and individuals and groups
and entities that we have involved here. Now, what I am going
to show you, for the record and without objection, I would like
this schematic that I have in front of me, it is a schematic of
the music licensing marketplace and the publishers/songwriters
and anyone else involved in the litany of names that I just
read off. I have a beautiful colored display here on my iPad.
You are not going to see it but I am just going to hold this
up. You may be able to understand some of it.
This is an example of the breakdown, and these are on both
sides. So I have three documents here of the breakdown of the
schematic just like a corporation would be set up; President,
CEO, Vice Presidents, et cetera. This is the complication of
the legislation that we have and those involved. Look at the
subcategories underneath the subcategories underneath the
subcategories on both sides of these documents. And the third
one that I hold up here, as well.
Then, we get into issues such as payment. Who is going to
be paid? How are they going to be paid? What are the courts
going to do about this? And I do not even have the court
schematic here showing the process that one would go through if
there are appeals.
So I think I got my point across here about how complicated
this is, how complex this is, but we are also talking about,
you know, fairness and on just to songwriters and writers and
individuals who are not being compensated, particularly those
because of the legislation from 1972, prior to 1972. And that
has something to do with State law, which is an issue that I
think can be dealt with today.
So as trying to be an individual, that is learning as much
as possible about this, hearing from everyone. Some of you are
a little disappointed because I haven't said, you know, which
way I am leaning on this. As a prosecutor, I want all the
information at my fingertips before I make a decision. But,
also, I am asking everyone that I mentioned here today to
please, please think about sitting down with us in a group
face-to-face. It is real difficult. It is more difficult to sit
face-to-face and look at each other eyeball-to-eyeball and say
no as it is instead of over the phone or an e-mail. So maybe we
can get together and you folks can get a consensus on this and
that will resolve the issue. It is a monumental task but we
will attempt it. My time has run out so thank you very much.
Mr. Conyers?
Mr. Conyers. Thank you, Chairman Marino.
Let me ask Paul Williams this question: Do you believe that
the consent decree system severely limits ASCAP's members from
achieving competitive market rates for their works?
Mr. Williams. Congressman Conyers, you absolutely go to the
heart of the reason that I am here. And to address something
you just spoke about, one of the things we're denied because
the consent decree is the right to bundle rights. You go to all
these different places for all these wonderful uses of our
music.
One of the things might change in the consent decree you
are going to give us is, which we are hoping will be given at
some point, is the right to bundle these rights. You know, it
is exhausting for people to go from one place to another to
another for these rights.
There are two copyrights. There is a copyright for the
original material, there is a copyright for the recorded
material. I think that it is incredibly complicated. What would
be a great solution is to bring it back to us and let us, you
know, let us control our future. Let us control our copyright.
The last thing we need is to throw more of this into the
government's lap to deal with it for us.
Mr. Conyers. So the decree hasn't accommodated the rapid
and dramatic changes, technologically, that we are all talking
about. And we have to end up in a rate court on top of it all
and I think that this is the new situation that we have been in
since the decree. And I am hoping that all of our Members on
the Committee will take this into account.
Now I want to say that broadcast radio has played an
important role in the lives of people all across the country.
Broadcasts have educated listeners to important events,
emergencies, and a lot of new music including jazz, I might
add. And we want to work with the broadcasters to continue to
do this work not just down to the communities but all the
communities. Now, if there is anybody of the nine witnesses
here that oppose creating an AM/FM performance right; would you
just raise your hand so I will know who you are?
[Nonverbal response.]
Mr. Conyers. Okay.
We got a couple of hands raised. And now that you have been
identified and branded appropriately, we will know how to
proceed. But I thank you for your candor and frankness about
this.
I am going to ask one of the hand raisers, Warfield, has
the lack of a public performance right for terrestrial radio
impacted the overall music marketplace?
Mr. Warfield. Mr. Conyers, I would say I have been in this
industry for over 37 years and what has always been true during
that period of time is the relationship that radio stations and
record companies have had. We have supported one another
consistently through that period of time to the point that we
are looking at an industry here, a recording industry even with
the challenges that it has, just like the radio industry has
its challenges, it is still the strongest recording industry in
the world.
I mean, I have heard remarks about who we could be with
that we are not proud of but we have an industry, a recording
industry here that is larger than any industry, any recording
industry in----
Mr. Conyers. Thank you.
Let me get one question into Ms. Cash before my time
expires. And it is about the RESPECT Act that I introduced with
our colleague, Congressman Holding. Do you think it would
address the payment disparity and do you think it important
that we fix the loophole in the copyright protection for sound
recordings before 1972, which refuses to pay, the older
artists?
Ms. Cash. I thank you for introducing that bill. Of course
I think we have to fix that loophole. The example I gave you
about my father, his royalties going to someone else who did a
cover version of his song. It is hard to understand how that
could be possible. But these legacy artists, some of them: they
are growing older; they are ill, the ones who are still around;
they have to go on the road when they would rather not to make
up for the money they would have received from these royalties.
It is heartbreaking. I see this all the time. I know these
people in that generation before me who are still around.
Mr. Conyers. Thank you so much.
Mr. Chairman, I yield back.
Mr. Coble [presiding]. Mr. Conyers, even though you have
exposed certain panelists, I think you will be able to walk the
halls safely. [Laughter.]
Mr. Conyers. I am more worried about them than me.
[Laughter.]
Mr. Coble. I won't go there.
The distinguished gentleman from California, Mr. Issa.
Mr. Issa. Thank you, Mr. Chairman.
Chairman Goodlatte has said he wants to do comprehensive
copyright reform and I am going to take this opportunity today
to challenge all of you, since you sort of represent, no
kidding, the spectrum, the width and breath, of the problem in
music both written and obviously the broadcast of the
performance.
And we will just go back, as we often do here, especially
for the non-lawyers who were here on behalf of the
constitution, to the clause. And I am leaving words out because
I only want to have the part related to copyright not the part
related to patent. The constitution clearly says that we have
``To promote the progress of useful art for a limited time on
behalf of the author's exclusive right to the respective
writings.''
Now it doesn't actually talk about the performance, but we
have all come to appreciate that a performance is, in fact,
part of that structure of writing. The constitution is an
interesting document to go back to because sometimes it is
illustrative of all the mistakes we, on this side of the dais,
and presidents have made during their time doing our job.
We have totally screwed up your industry relative to the
constitution. If I read the constitution very clearly, although
the ``promote'' does say that, in fact, what we do in the way
of granting you exclusive rights for a limited time is for the
purpose of in fact enhancing commerce. I don't believe that the
founders ever thought that the ``promote'' would be to exclude
a performance from being paid if in fact the owner of that who
had the exclusive right, which to me is the right to exclude,
didn't want it to be played for free. And yet, we don't have
that right. And I have joined Mr. Conyers for years in trying
to rectify that.
But I think there is a bigger problem here today and I
would like you all to comment on it from your respective
positions, starting with Ms. Cash. If, in fact, the intent has
always been exclusive right, and I will read that backwards,
right to exclude, belongs to the author or to the performer or,
to be honest, to the many people that are part of that
collective process that we will just call a right, if that
right were to be restored, wouldn't we essentially eliminate
all of these court decisions, all of these consent judgments,
and most of the laws that we have helped perpetuate including
the exclusions?
Then we would be down to Congress determining that there
had to be a fair use under free speech and so on. We would want
to have that. Sampling but not sampling as a ringtone,
necessarily. Those kinds of things. And wouldn't we, then,
empower all of you to come together, Mr. Williams, come
together and decide that collectively you are going to offer
your rights through pooling or individually you are going to
retain your rights if you are just, say, The Beatles?
Isn't one of the fundamental things we should consider
here, scrapping generations of legislation that now cause us to
infinitely try to figure out whether in fact Pandora can
effectively compete against broadcasters, effectively compete
against satellite, effectively compete because I am seeing all
of you wanting to get a level playing field but not give up the
playing advantage you have, if you have one. And I don't think
Congress can do that.
I will start down the end and just say: How do you see the
possibility of us scrapping almost everything we have done and
then giving the industry an opportunity to rebuild against the
original intent of the constitution?
Ms. Cash. Can I just say that the question, itself, gave me
hope? So thank you. That was so well stated.
I would hope that exactly what you just said, that
restoring, although I don't even know if restoring is the right
word because it was never there. Performance royalty would
solve so many of these problems that you could then build from
the ground up to create a new paradigm. I don't know, but I
hope so.
I know that for every Mick Jagger in the world there are
10,000 musicians who are in the trenches.
Mr. Issa. And they were all younger.
Ms. Cash. They are younger, too. And they depend on those
royalties that they are not getting. And, you know, the lack of
performance royalty, I will just say this quickly, it is kind
of a way of saying music should be free. If music should be
free, I am willing to have that discussion when musicians
aren't the only ones who aren't being paid.
Mr. Issa. And I really do want to hear from the
broadcasters too because you have inherited your business
model, you didn't create it. Your company's owners bought based
on a value that we put in. That, when Mr. Conyers and I try to
change the law, to a certain extent, we are taking away value
you have already bought and paid for. And I want to be
sensitive to everyone at the table has inherited an unfair deal
in some ways. Please.
Mr. Coble. The red light has illuminated so we will hear
from two witnesses, Darrell.
Mr. Issa. Who is most motivated to answer?
Please.
And, Mr. Huppe.
Mr. Van Arman. Well, let me touch on what Mr. Marino was
talking about. A fair market is a free market with a level
playing field that adequately compensates all creators but also
serves the public interest. So if we scrap everything and start
from scratch, that should be the guiding principle. How do we
make sure that small creators, big creators and the public, all
of their interest are well balanced?
Mr. Frear. Yes, thank you.
You know, I think it is something that the Congress should
consider. And, you know, as part of that consideration, please
take into account the concentration of ownership in the music
industry, and as you think about who is sitting across the
table to negotiate the right; who actually is that? And in many
cases, it isn't Ms. Cash. It is Universal Music, it is Sony, it
is Warner, and on both the label side as well as the publishing
side. I go out every day and try and negotiate direct licenses,
and over the last 6 years I have negotiated 100 direct licenses
with the music industry, none of them with major labels.
Mr. Cobles. Gentlemen, sorry to cut you off, Darrell, but
the time has run out.
Mr. Issa. My questioning time ran out, but answering time I
thought was unlimited, Mr. Chairman.
I am only kidding. Thank you. [Laughter.]
Mr. Coble. Thank you.
The distinguished gentleman from Florida.
Mr. Deutch. Thank you, Mr. Chairman. Thanks for holding
today's hearing.
It is really easy to decide for some that the way things
work today is the only way that they can work in the future, or
that the, what is by all accounts an absurdly complex system
that has developed over the past 100 years deserves all the
credit for the thriving cultural treasure that is the American
music legacy. Certainly, some aspects of the system have helped
but too many have been obstacles that the music industry is
growing stronger by simply working around. Too frequently,
revisions over the previous decades have ended up being both
reactive and, all too often, parochial; preserving one element
without making enough effort to look at music licensing as a
whole.
And while it is tempting to point fingers, and there has
been plenty of that today, I think it is helpful to recognize
that everyone has the opportunity, everyone, everyone at this
panel or previous panel, has the opportunity to benefit from
new growth and markets if, as Mr. Marino had said earlier, we
can agree on a basic framework that incentivizes and rewards
creators while giving companies who profit from the music a
fair transparent way to do so.
Our goal has got to be to fix the system so that everyone
has an opportunity to succeed together. And that new entrants
have the chance to continue transforming the way we listen to
music in the future. So that is, I think, how we ought to
approach this.
There are some issues that jump out at us. And, before I
get into my question, I wanted to throw out one example of what
I think represent the failures of a patchwork system,
specifically the pre-72 distinction.
This, for the youngsters in the crowd, is an album.
[Laugher.]
Mr. Deutch. This album is Neil Young's Harvest, which
includes legendary songs like Old Man and Heart of Gold. It was
released on February 14, 1972. The precise cutoff for pre-72
recordings is February 15, 1972. That means that any track from
this album, this bestselling album in 1972, can be played
without paying for it. But, if it had been recorded on February
16, released on February 16, just a day after its release, Neil
Young's songs from this album would be covered with full
Federal copyright protection.
Now, Mr. Frear, you said earlier in exchange with Mr.
Nadler that you believe that everyone should be paid. Why
shouldn't that include legacy artists?
Mr. Frear. Well, I believe it should. I think Congress has
had two shots at this and has rendered its opinion both times.
First, back in 1972 when it decided to distinguish, for reasons
I am not familiar with, between recordings before that date and
after it. And then, the second time, 20 years ago, when it
granted the sound recording performance right and did not
extend that right to pre-72.
Mr. Deutch. So if Congress acted today, you would
acknowledge that that is consistent with what you said earlier,
that everyone should get paid.
Mr. Frear. Well, I think that----
Mr. Deutch. Are you supportive of those efforts?
Mr. Frear. I would be supportive of closing the loophole
that Mr. Conyers referred to. That loophole includes
terrestrial radio, as well as pre-72.
Mr. Deutch. I appreciate that.
So let me get to Mr. Christian who said something earlier--
I appreciate it, Mr. Frear.
Mr. Christian, you said something earlier that I think
helps us focus a lot on what we are dealing with. You said in
your testimony that with particular reference to the recurring
demand by the recording industry for sound recording
performance right to be imposed on terrestrial radio
``Understand, you said, that the radio industry is not some
vast pot of riches that can be tapped as a bailout for a
recording industry that has failed to execute a digital
strategy that addresses a decline in its brick and mortar
income. Congress unambiguously intended that, in exchange for
your unique promotional support, terrestrial radio should be
treated differently from other transmission platforms.''
And you say that premise hasn't changed. And then, you go
on to explain that any change in our approach will be met with
opposition because it would cripple a radio industry that has
been financially treading water for years now. I would
respectively suggest that this is what we are trying to get at
today.
Going from the claim that there shouldn't be a performance
right because the music guys haven't been able to figure out
their industry and we shouldn't impose it on the radio
industry, which you acknowledge is, as you put it, has been
treading water financially for years now. That doesn't help us
solve the problem, help us address this position that we are
in.
As was included in this document that was referenced, I
think, Mr. Warfield, in your testimony it says that
``conventional wisdom is that radio airplay stimulates record
sales.'' And it quotes a study from a law review article in
1974. And it talks about a survey of rock music buyers that
found that 80 percent of albums were purchased because a
particular track was first heard over the radio. But that
survey was conducted in 1972.
I acknowledge the role the broadcast radio plays, the
important role that it plays in our communities, but for us to
go at this issue as if where we stand today, in 2014, is
somehow unchanged from the industry as it existed decades ago,
I don't think is appropriate and I don't think it is fair of
all of the rest of us, new market entrants, musicians and the
rest.
I hope that, as we go forward in this debate, we can
acknowledge the important role that everyone on this panel
plays in furthering the music industry and providing
unbelievable music and outlets for Ms. Cash's work and for Mr.
Williams' work and for all of the members. But let us do it in
a way that recognizes that, if we only take the parochial view
of our industry, than we are never going to come up with
something that works for everyone, we are probably going to
fail. And that might satisfy some of you for short time but we
are going to be right back at this again in a couple of years
if we haven't had a chance to take that full approach.
And I yield back. I thank the Chairman.
Mr. Coble. I thank the gentleman.
The distinguished gentleman from Utah is recognized.
Mr. Chaffetz. I thank the Chairman. And glad to see so many
of you having this discussion.
I particularly have a keen interest in Internet radio. I
happen to believe that that is a big part of our future. It is
where I see my kids enjoying music that they probably would
have never seen or heard otherwise. They wouldn't have gotten
it. Quite frankly, on terrestrial radio, they probably wouldn't
have been able to afford to buy the albums that we did in
generations past to even have a chance to understand or see
that. I personally have been exposed to a whole host of artists
that I now enjoy on a regular basis, but I would have never
heard of before.
I am also deeply concerned that the marketplace for
Internet radio really isn't working. We can point to one who
has been highly successful in Pandora. I enjoy them, but it
does concern me that it is not much more prevalent than that
and that, even under their model, they are not making the kind
of money, even though some people want to attack some of the
ownership, and also the others for, you know, making money on
the way.
The reality is the Copyright Royalty Board has twice tried
to set the royalties and twice the United States Congress
needed to come in at the last hour and help save the deal and
change it and make it so that it would work. And so, we don't
want to keep doing that. Any time we have to go to Congress to
get a fix, it is probably not going to turn out the way anybody
wants it to turn out.
So, with that, I have deep concerns about how do we make
this a viable business model going forward so that everybody
can win along the way, and everybody can get paid along the
way.
We have two standards: the 801(b) and the willing buyer,
willing seller, which I think is grossly misnamed. To suggest
it is willing buyer, willing seller and not have all the
information at your fingertips to enter in those discussions is
grossly misleading.
Let us go to Mr. Sherman, if I could. From what I have
seen, in my limited viewpoint, you have been a little
inconsistent. On the one hand you sort of like the 801(b) and
sometimes you don't like the 801(b) depending on which side of
the negotiation you are on. Can you help clarify that for me?
Mr. Sherman. We have actually said that we are fine with
changing 801(b) to a willing buyer, willing seller standard
across all platforms. We just want it to be part of
comprehensive reform. We don't want to pay on one standard and
not get paid on the same standard. But we think that the right
standard is willing buyer, willing seller for all creators
across all platforms.
Mr. Chaffetz. And would that include in the negotiation
having all the information available for all parties? Is there
anything you would withhold from those negotiations?
Mr. Sherman. Well, certainly the CRB process has all the
information available to all parties. How information can be
disseminated when there are a lot of private deals with
nondisclosure agreements and so on, becomes more complicated,
obviously.
Mr. Chaffetz. That is why I am asking you. What would you
do?
It seems to me that if you are going to have willing buyer,
willing seller, you got to come to the table with all the
information and not just hide parts of it, which is what has
happened in the past. Would agree or disagree with that?
Mr. Sherman. No. I don't think that anything has been
hidden because all the information becomes available to all of
the parties and all of the lawyers who are litigating the cases
have all the information. A lot of those settlements take place
after that information has completely circulated.
You know, one other thing I would like to comment on is you
talk about whether Internet radio is profitable and so and so
forth. But, if you look at a company like Amazon, which has a
$75 billion profit, excuse me, capitalization rate, everybody
would consider them a huge success. But their profit, last
year, was 1 percent $274 million on $70 billion revenue.
Mr. Chaffetz. But this is part of the concern. Some of the
biggest players into this music world. On the one hand, it is a
good thing to see Amazon and Apple get into this part of it,
but when you saw Rolling Stone and MTV and you saw these other
organizations try to get in the space whose forte is into the
music industry, they have never been able to make it a go. And
they started into this and then they had to let go of it. Yahoo
did this. Others cannot make a go of this.
My time is so short. I need to go to Mr. Harrison. I want
to understand what would happen to Pandora if Congress had not
stepped in and fixed what happened at the Copyright Royalty
Board.
Mr. Harrison. Well, the CRB rates are obviously part of the
public record. They are multiples of what the negotiated
settlement was, the pure play rates. I guess you just have to
do the math. Obviously, if we're paying 60 to 70 percent of our
revenue under the pure play rates. If the CRB rates are two or
three times that, I am not very good at math, but I don't think
at 120 percent of revenue we can make it up in volume.
Mr. Chaffetz. What do we need to do to ensure more
transparency? And why don't you have more competitors?
Mr. Harrison. It is an interesting question. I think you
have touched on it a little bit. The rates certainly are an
issue. The entrants we have seen recently are all engaged in
other lines of business; Apple, Google, Amazon. And music is
really an ancillary product that is designed to sell the
primary service. We have had East Village Radio, which is a
longstanding Internet radio service in Mr. Conyers, I am sorry,
Mr. Nadler's district. And that recently went out of business
because they couldn't afford the royalty rates.
So certainly, if you look at the comments that came in from
the Copyright Office's Notice of Inquiry, from a large number
of constituents including Mr. Frear, there is some process
improvements that needs to be made in the Copyright Royalty
Board that would improve the process and potentially improve
the outcome.
Mr. Chaffetz. I wish I had an opportunity hear all of your
answers but, Mr. Chairman, thank you for your indulgence in the
extra time.
Mr. Coble. I thank the gentleman.
The distinguished lady from California.
Ms. Bass. Thank you, Mr. Chair.
My colleague, Mr. Issa, had asked a question and I am not
sure everybody got a chance to respond. I just want ask it
slightly different. I believe he said: if we were to scrap
copyright and start over, what would you like to see changed?
My question is is that could you briefly explain one
provision that you would amend in the current law? And I know
that several of you didn't have a change to respond. So those
of you that didn't maybe you would like to take the opportunity
now.
Mr. Warfield?
Mr. Warfield. I am sorry. I know Mr. Christian and I
represented radio. We haven't had much to say here today. A lot
has been said about us. We have not had an opportunity to say
much.
Ms. Bass. Well, take the opportunity now.
Mr. Warfield. You know, I am hearing a lot of comments
about the, you know, the industry that provides free play for
free promotion and has done it for 80 years. And we are talking
about what is driving it. Radio, itself, is driving it. I even
heard comments here that radio does not drive record sales.
Congressman Deutch left, but there is a 2013 study recently
issued that does indicate very clearly that more than any other
platform radio airplay does drive sales. Even in digital
platform it drives sales. You know, we have got an industry
here that has really helped put these other businesses, give
them the opportunity to go out and create a new business model.
Unfortunately, even on the radio side, we are not able to
participate on the digital side. We pay into the system as it
is now. We pay hundreds of million dollars to ASCAP and BMI and
SESAC. We pay tens of millions of dollars to SoundExchange, and
we do participate on digital side. But many broadcasters
unfortunately cannot make a go of that as other entrants in the
digital arena have found. With the way that the laws are
written today, we cannot make money. We can spend money, we
cannot make money. And that is not a model that is going to be
a healthy one for any of the participants here.
So from a NAB perspective, we would very much like to see
changes made in the streaming rate standards so that all of the
participants here who all have concerns there can participate
more fully and grow a platform that will benefit artists,
writers, performers, labels, all participants here.
Ms. Bass. Other examples? Anybody else would like----
Mr. Christian. I think one of the things that we would also
like to see from Congress is if at some point in time, if you
all could define what a performance is. Nobody has yet been
able to tell us what a performance is. If you listen to
SoundExchange, they will tell you that it is 3 seconds long.
They won't tell you whether it is beginning, middle, or the end
of what it is. So we are subjected to royalties that we can't
even get a consensus as to what our royalty payment is for, and
especially on the digital streaming part of it.
On the other part, we really must ask for oversight,
especially in the advent of new performing rights organizations
that are forming right now. There are no barriers to entry for
performing rights organization; you need a catalogue, you need
composers, you need whatever. And unless those rights are
protected for the aggregators or some oversight, we run the
risk of finding, as we have with SESAC, where there are
antitrust things; which is why the 801(b) is more homogenous
than the willing buyer, willing seller.
We really do need this oversight for an industry. We have
got 10,000 different licenses to be administered, which is why
the blanket license is important that we keep it in place,
which is why the consent decree is important. Because,
otherwise, you can imagine the madness of trying to find a way
to deal with individual radio stations in your home district
and every district up here to give them a license, the record
keeping and everything else. One final thing is----
Ms. Bass. Thank you. And then I want to move on before my
time runs out.
Mr. Christian. Okay. We do need a transparency in terms of
identification of catalogues. We need to be able to find out,
on a daily basis or whatever, who owns what; who the performers
are and what it is.
Ms. Bass. Thank you.
Mr. Huppe, I believe----
Mr. Huppe. Thank you, Congresswoman.
Ms. Bass [continuing]. You want to respond. And then, Mr.
Williams, you look like you want to respond.
Mr. Huppe. I would like to respond to our friends at radio.
First of all, the concept that the sound recording Internet
radio business is not working. I am not so sure that the proper
image has been presented to the Committee.
The fact of the matter is, it isn't just Pandora who, last
year alone, knows to non-GAAP profit. But the head of Clear
Channel, Mr. Bob Pitman, announced just a few days ago that the
iHeartRadio, that is terrestrial radio simulcast online, has 50
million users and has made several hundreds of millions of
dollars, I believe, or hundreds of millions of dollars, which I
assure you is vastly in excess of the content cost from where
we sit.
Ms. Bass. Thank you.
Mr. Huppe. Secondarily, we have 500 more services now using
the statutory licenses that SoundExchange administers, 500 more
than were there 2 years ago when I last testified before this
Committee.
Ms. Bass. Okay.
Mr. Huppe. You know who the majority of those are? The
majority of those 500 are broadcasters like those that Mr.
Warfield is speaking about going online.
Ms. Bass. Mr. Williams?
Mr. Williams. If you ask what we would change right now, it
is thanks to Representative Collins and Jeffries, it has been
offered to you right now, which is the Songwriters Equity Act.
It fixes a small part of a really large problem for us; it
fixes it immediately.
I agree with what Mr. Christian says about the value of the
blanket license. It is a wonderful way to come together and
simplify the system. And for somebody like Pandora, that 70
percent of their income that is rolling out for royalty
payments, I have to remind everybody that ASCAP is getting
about 1 or 2 percent of that. I am under oath, I won't say it
is 1 percent but it is very close to that. It is a tiny, tiny
part of that. So I wouldn't pretend to tell you how to adjust
your business model but there is some way to do this so that
music creators who create the one product you have can be
properly compensated.
Ms. Bass. Thank you.
Mr. Coble. The gentle lady's time has expired.
Ms. Bass. Okay.
Mr. Coble. The distinguished gentleman from Georgia, Mr.
Collins.
Mr. Collins. Thank you, Mr. Chairman.
I think that, one, is sitting, you know, here today is one
thing I have tried in this whole process and many of you on
this panel, but many of you in the second, third, and forth
rows back have been in our offices and we have talked many of
times. And yes, the Songwriter Equity Act is an issue that we
have brought forward. There has been other issues that have
come before, from performance right to others also. I have
tried to be very consistent that the one thing that I feel is
that the creator in this process and the performer, there is a
valuable inherent property right there.
I think I applaud the Supreme Court this morning for
inherently seeing that there is a creative property right. Now
that does not mean that the broadcasters and I will always get
along. Probably not. But that is okay. There are things in this
debate that we can all look at.
I was thinking about it just a few minutes ago as I
listened to all of you. And the one thing I have tried to do in
this whole process is I have interesting comments not to me, I
have heard about it when you go to other places, so yes, it
comes back, is that I want to take an arm from one and a leg
from another and fix this all together.
But what I have found in the last little bit is that what
has to happen in this process is one bad business model 5 years
ago could now be the bad business model today. And you don't
need Congress to come in and prop up either one of you. You
need a process in which we can look at this and we fix it from
a holistic approach that says that everybody is included; that
everybody has a stake at the table. The pie is enlarging. Now
the reason that some, and was interested in hearing, just a
second ago from, you know, my friend from Pandora which I
listen to, that a lot of these went out because they couldn't
afford the rates.
Well, there is a lot of businesses in this country who go
out of business because they can't afford their cost. That is
an issue we have to deal with on both the broadcaster side and
the digital side. The performers and the copyright holders are
in the middle. That is the one thing that I am looking at.
One of the things that concerns me here, though, is that we
are wanting many times to fix today's problem. And I have
shared this with you when you come in. That is not my goal. My
goal is to fix this problem when Pandora was--wow, I used to
remember when I used to--you still listen to that? Unless they
have changed greatly and it is no offense to them? But I think
the radio, and when my first listening to an 8-track tape, as I
told Ms. Cash this morning, was to her dad listening to A Boy
Named Sue live from San Quentin. It all develops.
So the thing that you got to understand here is, is that
when we come together, that you have got to remember that the
bottom line there is a property right interest that many of you
at this table make good money off of. And that has to be
rewarded at all levels.
And I appreciate Mr. Huppe bringing in those background
musicians and others. The problem is, though, if you continue
and if we continue in this round of saying, well, I've got to
protect my model and you got to protect your model and we don't
get to that point, then my question is where are we at 20 years
from now? When this panel maybe looks completely different,
where are we at? So I will open up a question to you. I don't
want your answer for today where broadcasters say protect our
terrestrial radio, where Pandora says look at our rates. Where
are we going to be so that we are not coming back, as my friend
from Utah said, every time there is a problem at the rate board
we run to Congress to fix it?
I am an attorney beforehand and the last thing you wanted
to do, and I did counseling and divorce work, the last thing
you wanted was the judge to make a decision. Because, in the
end when the judge makes the decision, both parties are
unhappy. When you make the decision, then we go.
So Mr. Warfield, we got a minute and ten, you got 30
seconds.
Mr. Williams, you got 30 seconds.
Tell me what you envision how we can work this out so we
are not propping up bad models either way.
Mr. Warfield. Well I think that there certainly needs to be
a close look at the digital rates that are being charged. We
would like to participate and grow there. We think that helps
all of the stakeholders that are here.
The one thing that I would ask this Committee to keep in
mind is the consumer, the user. We talk about terrestrial
radio, it is free. It remains free. There is no additional cost
that they have to incur. Let us keep them in mind as we talk
about with these other business, how this is going to be more
efficient for them and more cost worthy. But the consumer needs
to be considered here also.
Mr. Collins. Time.
Mr. Williams?
Mr. Williams. We have an expression in recovery: Progress
not perfection. Great progress is a Songwriter's Equity Act.
That is a great beginning. The fact is, the people we need to
think about today are the young songwriters who are starting
out trying to have the kind of life that I have had.
I have a daughter who is a social worker. She got that
because I was properly paid for the hard work that I was doing.
What we can do is give more control back to the
songwriters. Yes, we don't want the judge to make all these
decisions but we can move back to an arbitration panel which
makes it a speedier more efficient way to deal with our
problems. I think that it is a process that is going to take
longer than any of us want it to take. But the fact is, if we
don't step into it and make that first little adjustment,
people are going to wind up getting day jobs instead of writing
songs for a living.
Mr. Collins. The industry is moving forward. We are not
moving backwards. It is not going to be automatic, as the song
says.
Mr. Williams. Exactly.
Mr. Collins. So you got to move forward. You all got to
come to the table and talk about this. And that is what we are
going to be----
Mr. Williams. Thank you, Sir.
Mr. Collins [continuing]. Beginning to do in the next few
weeks and months.
Mr. Coble. I thank the gentleman from Georgia.
The distinguished gentleman from Louisiana and I will say
to Mr. Richmond, if you promise not to show up at the ballgame
tonight, I will give you 10 minutes. [Laughter.]
Mr. Richmond. I think with 10 minutes all I can do is get
in trouble anyway. So I will take the five, but thank you.
Let me just pick up where my colleague, Mr. Collins, left
off. And that is, you know, and I think Mr. Frear mentioned
that Congress had two chances to get it right with the 1972 and
the legacy royalties, and we didn't. All I can promise you is
if we solve this problem, nobody is going to like it and it is
probably going to be wrong. Because we are not the subject
matter experts on it, the technology moves so fast and we will
probably screw it up. But I say that to say, you all are at the
table. You all should be in the room trying to figure out who
can give and come to some sort of solution. And the other thing
I would tell you all, just to be honest, is that nobody has a
better ballgame position. Because if we do it, we'll probably
start from scratch and nobody will like the results.
So that would just be my recommendation. And, you know, the
comment was made earlier that for every Mick Jagger, there is
10,000 artists in the trenches. Well, I think they all live in
New Orleans, by the way. And I want to make sure that they have
an opportunity to continue to do and follow their passion and
their dreams, but at the same time be compensated for it. And I
tell people all the time when I go speak at schools, follow
your dreams, do what you love, and if you do it well, you will
make a living doing it. And I want to be able to look those
kids in the face in our performing arts schools and all those
things in New Orleans and actually mean it. And it has
benefitted so many people in New Orleans and I would just like
it to continue and to be there for the long-term.
Mr. Warfield, let me just ask you a very direct question
because we beat around the bush and nobody says, what impact
would it have to your industry if you all had to pay the
performance, I mean to pay all the rights and royalties for
what you play on the radio?
Mr. Warfield. I have testified to the potential financial
impact of that to radio broadcasting. I have been in this
business for 37 years, I have been in radio stations that have
been sold. I worked for a wholly owned minority radio company
that at one point was the twenty-second largest broadcasting
company in the country that no longer exists today. And we made
it clear at that point that we could not afford to pay a
performance royalty if it was imposed upon the industry.
There are severe financial difficulties that many
broadcasters would experience if that were the case. And, you
know, I have been in this for 37 years, I have been doing it
for 37 years to serve the communities that our stations
serviced. The communities that I came out of, quite honestly
here in Washington D.C. and Anacostia, continue to do that; not
necessarily to serve the stakeholders that are here but they
all benefit from what we do as terrestrial over-the-air
broadcasters free.
Mr. Richmond. Well let me ask you a question. The station
you talked about that closed, closed anyway. Do you think that
this would put, for example, Clear Channel out of business?
Mr. Warfield. There are many different size broadcasters.
You know, there are over 15,000----
Mr. Richmond. I am using Clear Channel as an example. Do
you think it would put Clear Channel out of business?
Mr. Warfield. I don't know their financial standing. They
are contributing and participating in the digital arena. My
company cannot afford to do that on any major way. We could not
afford the cost of participating. I think everyone up here
would like to see the pie grow, we would like to see the
digital platform grow, but not at the expense of our companies.
Mr. Richmond. And Mr. Frear, you mentioned that if
everybody is contributing, that 1972 was a number that Congress
picked. And are you saying that we decided to pick another
number that went back further, as long as everybody had to pay
it, you all are okay with that?
Mr. Frear. Quite honestly, on this issue, we have been open
to any number of solutions for years now. I have had many
discussions with major labels over the years about whether or
not they don't want to find a way to compromise on this issue.
And I am happy to work with the Congress, I am happy to work
with SoundExchange and the major labels to, you know, find some
appropriate ground in the middle.
As I said before, I don't know why the choices were made
and maybe there are other business reasons, good policy
reasons, why the choices that were made were made. And we are
wide open to the discussion.
Mr. Richmond. Well I see that my time is about to expire.
And I would just say again that I would love to have balance on
this and make sure that everybody at the table continues to
thrive. We don't want to put anybody out of business and we
certainly don't want to send anyone to bankruptcy or influence
anyone to stop following their dreams. So help us help you. And
that means get in the room and figure out ways to come to some
sort of conclusion. And with that, Mr. Chairman, I yield back.
Mr. Coble. I thank the gentleman from Louisiana.
The distinguished gentleman from Missouri.
Mr. Smith of Missouri. Thank you, Mr. Chairman.
It has been interesting participating in these review
hearings for the last year, serving on this Committee. And one
common ground I think that I have heard from all of you and the
folks that I have been meeting with the music industry
throughout is that we all love music. We just got to find more
common ground. And I look forward to working with all the
stakeholders to try to get that common ground. But I do have a
few questions.
Mr. Huppe, I think it would be helpful, at least to myself,
for you to lay out for us the standards that are used for
determining royalties with respect to each copyright for a
performance of a song. For instance, who is a willing buyer,
who is 801(b), who is set by the rate court? Could you tell me
briefly who is subject to which standard for each of the two
copyrights?
Mr. Huppe. Sure. Thank you, Congressman.
Obviously, it is a great question and a complicated
question. I think the best way probably to answer that is to
give you an example. And the example is this: Let us say you
are driving your car down the road and you are listening to an
excellent Rosanne Cash recording. And if you happen to be
listening to that over your cellphone through an Internet radio
station, chances are most of those are set according to the
fair market standard value; willing buyer, willing seller. And
the rate that the service would pay for that would be set by
the CRB, go to SoundExchange. It would be anywhere between an
eighth or a quarter of a penny for that stream.
Let us say you decided to stop doing that on your cellphone
and you decide to switch, instead, to get that exact same
awesome Rosanne Cash sound recording through satellite radio.
Well that is set by a completely different standard, the 801(b)
standard, which we believe is below market value. So the
compensation flowing from that would be set according to
different rules and they would pay about 9.5 percent of their
revenue pro rata across all the streams.
And then, let us say for whatever reason you got out of
view of the satellite and you had to go with good old AM/FM.
Well that would be easy because in that case there is no right,
there is no rate, there is no CRB and the answer there is zero.
And keep in mind that is the same recording coming out of the
same speakers in your car and hitting the same ears. Each one
of those three is set differently according to different rules.
And that is just not right.
Mr. Smith of Missouri. Mr. Harrison, you mentioned in your
testimony that Pandora has paid $1 billion in royalties. Is
that correct?
Mr. Harrison. Yes. This summer we will have paid, in total,
$1 billion in royalties.
Mr. Smith of Missouri. Okay.
Then my next question is, how is it that songwriters and
artists claim that they are not getting paid?
Mr. Harrison. Well, that is an excellent question. I mean,
today, Pandora is the highest paying form of radio. We pay a
higher percentage of revenue than either terrestrial or
satellite radio. We will pay north of $400 million in royalties
this year, alone. To the extent, the copyright owners believe
there is a different or better allocation of that revenue.
Certainly, we would say that the copyright owners, themselves,
are better situated to make that relative evaluation.
Mr. Smith of Missouri. Mr. Williams, would you like to
respond to that?
Mr. Williams. I totally agree that the copyright owners,
themselves, are the people to make these decisions and all. You
know, I have said it again and again and I said it in my
opening statement. The fact is we are a tiny percentage of that
cost. So we need to find balance in this.
You know, when the song of the year, the GRAMMY winning
song of the year from 2011, is performed 72 million times on
Pandora and the four writers each get less than $1,500 a piece,
there is something terribly broken in the system. And, you
know, you could take from my comment that, you know, that we
have a major, major problem with Pandora. We have a major
problem with Pandora's balance of payment. We are not going to
suggest how they adjust that, but fair market will tell. Give
us a chance. You know, we don't have the right to say no. With
this case, we don't want to. We want our writers and copyright
owners to be properly compensated.
Mr. Smith of Missouri. The song of the year in 2011; was
that Need You Now that you referred to earlier?
Mr. Williams. I am going to turn to my contributor, excuse
me. It was Need You Now by Lady Antebellum.
Mr. Smith of Missouri. 72 million performance.
Mr. Williams. 72 million performances.
Mr. Smith of Missouri. And what was----
Mr. Williams. In other words, to give you the exact rate of
exchange for it, we get nine cents for a thousand streams at
Pandora. Roughly, I think it is a little less than nine cents.
You know, you just don't build a kingdom on those kind of
dollars.
Mr. Smith of Missouri. Ms. Cash, would you respond any
differently.
Ms. Cash. I am sorry.
If all that money was paid out of Pandora, if it was paid
in an aggregate, I don't know how it was distributed. It
certainly didn't come to artists.
And, notwithstanding my hard words toward them, I want them
to succeed. I see the future. I want all of us to succeed but I
just have to point out that all of these gentlemen on the panel
would not be here had songs not been written. And it is in
their best interest to get us paid so we are inclined to give
them more songs.
Mr. Smith of Missouri. Thank you.
Mr. Coble. I thank the gentlemen.
The distinguished lady from Washington State----
Ms. DelBene. Thank you, Mr. Chairman.
Mr. Coble [continuing]. Is recognized.
Mr. DelBene. And thanks to all of you for being here, for
all of your time.
It seems to be clear recognition across the board here that
we are seeing a change in business model, definitely, toward
digital transmission of music. And that is where the industry
is headed. And even broadcasters are talking about the need to
move, you know, to streaming, et cetera.
And I wanted to ask you, Mr. Warfield, you have folks who
are also streaming content and digitally providing content, how
are you seeing the business model move even for terrestrial
stations into the digital world?
Mr. Warfield. Well we would certainly like to participate
more. The rates that we pay for digital streaming is probably
double what some other participants do pay. And as I have
indicated to the panel here, it is not economically feasible
for most broadcasters, particularly to mom and pop, locally or
in broadcasters, not the big guys that everyone tends to focus
on but which makes up most of the broadcast industry in this
country have not been able to find a way in paying those kinds
of rates to be profitable. So many broadcasters have just made
a decision not to stream.
Ms. DelBene. So you are not seeing folks move that
direction and seeing somewhat more of their, you know, their
audience moving or accessing----
Mr. Warfield. Congresswoman, we still reach over 240
million people a week with radio. We still have the largest
audience out there which is why radio is the number one driver
of music sales, whether it be sales in a retail outlet or
digital downloads. I mean, so our audience is still loyal to
what we do. We are free. There is no additional cost that is
there for them. And we provide a lot more than just playing
music. So our audience is still supportive of the business
model that we have and we have been able to develop with the
record industry.
Ms. DelBene. But given that we are talking about music
today, do you see a change? Would you say there is a change? I
mean we are talking a lot about how folks are listening to
music today. Would you acknowledge that there is a change in
where things are heading?
Mr. Warfield. There is a change. I think all of us listen
to different platforms. I have been in radio for 37 years. I
have always listened to radio. I still buy music. So there is a
change. We want to participate as that change occurs but there
is still a basic broadcast industry here that our listeners,
our audiences, our communities, still rely on and they still
support.
Ms. DelBene. I have a question, maybe, for anyone who has
an answer on this one which is we talked a little bit about
internationally how our laws are different here versus around
the world. Are there particular models that you have seen in
other parts of the world that you think are good examples of
where we should be headed?
Mr. Sherman. International models pay almost in every
country of the world with very few exceptions. We should simply
follow that model. It is really very simple.
Ms. DelBene. And beyond paying specifically, are there
other unique aspects of models in other countries that you
think----
Mr. Sherman. There are some other models in which music
publishing rights are paid on a percentage base instead of on a
cents-based system. We could learn from that. I mean, there are
definitely models that we could be looking at to try and
redefine something for the United States.
A lot of the questions have been what specific changes
would you make? But the real answer is, we have to change
everything. You can't pick one piece. That is what we have done
for the last decades, was pick one problem and fix one problem
at a time. We do really need a holistic solution.
Ms. DelBene. Yes, Mr. Williams.
Mr. Williams. If I may, one of the things that the
Europeans have that we don't have is a limited grant of rights.
For us to, you know, as rights holders to be able to license
some of our rights directly would be a great improvement.
Ms. DelBene. Yes, sir.
Mr. Van Arman. And then, just to echo what Cary Sherman was
saying, it is that we don't have a broadcast right here that is
the big difference. We do need a broadcast right and it will
also unlock lots of money from those international markets with
reciprocity. Our creators here will be able to get paid for
their performances overseas.
Ms. DelBene. Okay.
Thank you very much for your time and yield back my time,
Mr. Chair. Thank you.
Mr. Marino [presiding]. Thank you.
Mr. Sensenbrenner?
Mr. Sensenbrenner. Thank you, Mr. Chairman.
This brings me back to what I attempted to do and succeeded
in about 15 years ago with the Fairness in Music Licensing Act
which was put in the copyright term extension law. And that was
easy compared to this because the people who were for my bill
were those that didn't have any content over music like
retailers and restaurateurs but ended up getting nailed with a
licensing fee and everybody else was against it.
And, you know, I do remember very vividly that my good
friend, Mr. Coble, had a hearing in Nashville on that subject.
And I had to be driven back to the national airport in the car
of the United States Marshal who was a little bit worried about
my safety. And he stayed with me until the wheels were up.
Now I did have a long series of debates with our late
colleague, Sonny Bono. And that ended when he was kind of
shedding tears about changing the music licensing law before an
audience of the National Restaurant Association which was very
sympathetic to my standpoint. After he was very elegant, I got
up and turned around and I said, ``What Mr. Bono is telling you
is 'I got you babe.' ''
Now, with this background, you know, here, everybody at the
table has a different viewpoint on this issue. And I think that
getting you all together and getting on one page will happen 2
days after the sun rises in the West.
Now, you know, that being said, let me ask Mr. Warfield a
couple of questions. And it basically goes as: Under the
current system of licensing and royalty payments, have record
sales gone up? And do you believe that the free over-the-air
music that you and your members broadcast, have a lot of people
going and actually buying music and paying the royalty on music
that they buy?
Mr. Warfield. From what has been recorded by the recording
industry, music sales have gone down, I believe, in terms of
hard copies. Not through the fault of anything that radio has
done. We continue to freely promote and play this music. And
our audience does continue to go out and buy the music.
Within that system between radio and records, we are still
driving our consumers, our listeners, to go out and buy music.
There is no other way that they can get it. They're not
recording, what we do on the air, or stealing that content by
recording our program over the air and then listening to it.
There are alternatives that they can go to. They can certainly
go to digital platforms but if they go there they have to pay
just for the right to listen to what is there. There is no
charge to do what we do.
Mr. Sensenbrenner. Okay.
Mr. Warfield. So there is a digital model out there that
none of us has really found a way to make it work. And I think
we can all sit here and agree that there is a challenge there
that we have as a business model which can help hopefully grow
the various platforms, benefit all of the stakeholders, the
recording industry also, so they are not taking anything away
from radio.
Mr. Sensenbrenner. You know, I am kind of a simple country
lawyer. And what you say is that the existing system is that
you give them free advertising by putting their music on the
air but you don't have to pay for giving them free advertising?
Mr. Warfield. Free airplay, free promotion.
Mr. Sensenbrenner. Well promotion and advertising are kind
of synonymous, aren't they?
Okay, so what I am hearing from some of the other folks is
that they want you to pay for giving them free advertising. Is
that kind of a simplistic way to get to the bottom of this?
Mr. Warfield. I have heard that from some participants. But
the one thing that I will say, relative to what radio has done,
radio has helped the record industry develop to being as
vibrant as it is today even with the financial difficulties
they have. We have always supported the writers of the music.
But we also help to develop the careers of the artist we are
here talking about in some cases today. To develop careers
that, in many cases today, when they might not be supported by
record labels because of airplay that we are doing over the air
free, continue to promote what they do. They can still tour.
Whether they choose to tour or not, that is a personal decision
but they have the opportunity to do that. And we continue to
support those artists in many ways.
Mr. Sensenbrenner. My time has almost expired so I yield
back.
Mr. Coble [presiding]. I thank the gentleman.
The distinguished gentleman from New York, Mr. Jeffries.
Mr. Jeffries. I thank the Chair and let me also thank each
and every one of the witnesses for your presence here today
and, in particular, Mr. Williams and Ms. Cash for your advocacy
for the creative community and on behalf of your fellow artists
and your fellow songwriters.
Let me turn, now, to the subject of Internet and/or
satellite radio. And let me, first, say that I believe the the
success of Internet radio is critical for the overall music
ecosystem in terms of providing a viable, meaningful
alternative to the piracy that was previously taking place and
was extremely rampant. And that is a point I believe cannot be
overstated.
But I do think that there are a few issues relative to the
compensation structure and the business practices that I wanted
to explore. So let me start with Pandora and Mr. Harrison.
Now I believe that you testified earlier today that one of
your business practices is to ensure that artists receive a
fair share; is that correct?
Mr. Harrison. First of all, Congressman Jeffries, thank you
for the kind words about our service.
What I was speaking about is the value that statutory
blanket licenses have, not only for services like Pandora that
allow us to license content efficiently but that songwriters
and recording artists actually participate directly in those
royalty streams.
Mr. Jeffries. Okay.
Now am I correct that Pandora, however, notwithstanding
what you just indicated, currently refuses to pay for the use
of pre-1972 recordings under either State or Federal law?
Mr. Harrison. We do not pay under Section 114 for the
performance of pre-72 sound recording which is Federal law.
Mr. Jeffries. But you are also contesting the rights of
recording artists to receive any compensation in State court as
well; correct?
Mr. Harrison. We do have a pending litigation in the State
of New York. And, yes, we disagree with the claims that the
record labels make in that case.
Mr. Jeffries. Okay.
Now, pre-1972 recordings are an important part of business
model; true?
Mr. Harrison. Yes, they are.
Mr. Jeffries. So you have, for instance, a 60's oldies
channel; is that right?
Mr. Harrison. Yes.
Mr. Jeffries. And you have got a motown channel; correct?
Mr. Harrison. I believe so, yes.
Mr. Jeffries. 50's rock and roll channel; true?
Mr. Harrison. I believe so.
Mr. Jeffries. Golden oldies channel?
Mr. Harrison. You are aging out of my demographic, but I
believe that is true.
Mr. Jeffries. Okay.
A doo-wop channel I believe; is that right?
Mr. Harrison. I believe so.
Mr. Jeffries. A classic soul channel as well; correct?
Mr. Harrison. Yes.
Mr. Jeffries. Now Pandora doesn't pay anything for any of
the sound recordings played on any of these six channels; true?
Mr. Harrison. If the recordings were made after 1972, that
would be correct.
Mr. Jeffries. Okay.
Before 1972; correct?
Mr. Harrison. Correct.
Mr. Jeffries. Okay.
So, for instance, Respect was recorded by Aretha Franklin
in 1965. Every time Respect is played on Pandora, Aretha
Franklin doesn't receive a dime; correct?
Mr. Harrison. Well Pandora would not pay a performance
royalty to the record label. She would be paid if she were a
songwriter.
Mr. Jeffries. Okay.
So My Girl was recorded by the Temptations, I believe, in
1964. The Temptations don't receive a dime of compensation from
Pandora every time this extremely popular song is played;
correct?
Mr. Harrison. Again, if you are talking about a payment to
the record label, that is correct. If they are songwriters,
they would get paid.
Mr. Jeffries. Okay.
And the same would be true for Soul Man, recorded by Sam
Moore in 1967; A Change Is Gonna Come, recorded in 1964 by Sam
Cooke; Stop In The Name Of Love, recorded in 1965 by the
Supremes. I would suggest that the failure to pay recording
artists for pre-1972 recordings is not a fair business
practice. And in the context of this overall discussion, it is
a problem that should be voluntarily resolved. But if it is not
voluntarily resolved, Congress should act.
Let me turn, quickly, to SiriusXM, which I believe you also
refuse to pay recording artists for pre-1972 recordings; is
that correct?
Mr. Frear. There is no public performance right and, under
the law, there is no amount due to them.
Mr. Jeffries. Right, on the Federal law. But on the State
law, you are also in litigation, I believe, in California
trying to prevent compensation under California State law;
correct?
Mr. Frear. It is clear from the litigation there is no
public performance right under State law either.
Mr. Jeffries. And in that California State court
proceeding, I believe your company stated that ``Granting a
pre-1972 public performance right would produce a pure windfall
to recording artists without any commensurate benefit to the
public.''
That was in your filing in that California case; correct?
Mr. Frear. Under the way that the policy is written under
copyright law, that statement is true.
Mr. Jeffries. I would just suggest a windfall is defined as
an unexpected, unearned or a sudden gain or advantage in
compensating artists for their creativity, even if it was
recorded prior to 1972, is not a windfall, it is the American
way.
I yield back.
Mr. Coble. I thank the gentleman.
The distinguished gentleman from Rhode Island is
recognized.
Mr. Cicilline. Thank you, Mr. Chairman. And thank you to
the witnesses.
I am proud to come from the State of Rhode Island, which
was the birthplace of the creator of the National Endowment for
the Arts and the National Endowment for the Humanities Center,
Claiborne Pell, who I think reminded us that the strength of
our nation was not simply the power of our military or our
economic resources but our ability to honor the creative
artists and the culture of this country and protecting the work
of our artists is an important part of protecting our
democracy. So I thank all the witnesses for this really
important testimony.
I want to really begin with you, Mr. Frear. You said, in
fact, ``I believe everyone should be paid.'' And I assume you
believe everyone should be paid because they have created a
product and they are entitled to be compensated for it and that
argument applies to creators before 1972 and after 1972, based
on this notion that people are entitled to value for what they
have created.
Mr. Frear. So I am not a copyright lawyer, I am just a
history major. And it doesn't make a whole lot of sense to me
that the distinctions that were made in the past between pre-
and post-72 artists were ever made. It doesn't make a whole lot
of sense to me----
Mr. Cicilline. So you agree that we should----
Mr. Frear. Let me just finish up, Congressman.
When they granted the sound recording performance right
that they did not give it to pre-72 artists and it makes no
sense to me that terrestrial radio gets a free walk.
Mr. Cicilline. And you agree that not only should all of
that production be compensated but that it should be done in a
fair amount driven by the market.
Mr. Frear. Yes.
I agree it has to be a working competitive market.
Mr. Cicilline. Okay.
And, Mr. Harrison, you spoke about the value that Pandora
provides to hundreds of millions of Americans as a result of
your service. But would you agree that there is some danger
that, if that product is provided without compensation, that
the very product you sell could be in peril?
Mr. Harrison. I don't think I understand your question.
Mr. Cicilline. Well, you rely on a product that you, at
least for part of your inventory, you don't compensate the
artist for.
Mr. Harrison. If you are referring to sound recording fixed
before 1972----
Mr. Cicilline. Well the example Ms. Cash used, where
someone re-recording her father's song would be compensated,
but someone who is playing the original recording would not be
required to compensate her. That strikes you as inconsistent,
nonsensical, not good public policy; I take it.
Mr. Harrison. Well, unlike David Frear, I actually am a
copyright lawyer. And copyright makes distinctions like this
all the time. A musical work written by W.C. Handy in 1920 is
part of the public domain and isn't compensated. And yet, if a
modern day recording artist were to record that song, that
recording artist would receive a royalty.
Having said all that, Pandora would be in favor of
following the Copyright Office's recommendation, which is fully
federalizing pre-72 recordings to allow both consumers to
benefit from the protections, like fair use under the Copyright
Act, allow recording artists to exercise their rights to
terminate their transfers.
So I understand the argument, sir, but if Congress makes
the decision to fully federalize pre-72, we would be happy to
pay.
Mr. Cicilline. So does anyone think that that is a bad
idea? Does anyone think this distinction of 1972 makes any
sense? Any of the witnesses?
Mr. Sherman. We agree that the distinction ought to be
erased. There are complications in terms of how to do it. And
we have expressed a perfect willingness to figure out, with the
Copyright Office and all the stakeholders, how to federalize
pre-72.
Meanwhile, this legislation, which deals with legacy
artists who need money now, there is really no reason why
action couldn't be taken on that immediately while we figure
out the federalization.
Mr. Cicilline. Mr. Christian, let me just ask you, you
argue that this existing model ought to continue with free use
of music and AM/FM. And it strikes me, I am new to this
Committee, new to this issue, but it is a curious argument that
I can't think in another context where the kind of creative
results of musician or artist should whole scale be
appropriated, used to build up a business and generate revenues
without any compensation. I am wondering why you don't think
the marketplace--you know, assuming there is some value to
promotion which I will concede that the artist would have an
ability to understand what the value of that is and negotiate a
price that made sense for you as the consumer of that music and
for the creator and artist who created it.
Why would the marketplace not provide the kind of context
for a fair exchange of that and why would we ever permit this
practice continue where that asset created, that creative
product created, is just used for the revenue generation of a
private enterprise at the expense of the people who created the
products?
Mr. Christian. Are you speaking about the pre-1972?
Mr. Cicilline. Yes.
Mr. Christian. That really isn't applicable to the radio
industry as we don't play performers that have performance
rights right now. We do pay for composers, authors, and
publishers work in that era.
Mr. Cicilline. I am talking about performers, post-72.
Mr. Christian. Oh, after 72. We believe that what we have
right now and that is that the promotional value is supplied to
them. Our product is free. For instance, we can't charge for
our product. Please understand that. We provide a free product
to listeners across United States; hundreds of millions of
people. And we do this in marketing and what's also, was
brought up on the advertising, but there is also promotion. And
that is if you want----
Mr. Cicilline. Oh, no. I understand that. But my question
is: I recognize your argument that it has promotional value,
but why is it not in the context of a free market, an exchange
between the artist and you, as the broadcaster, to say this has
some value for promotion so this is what I want to charge as an
artist, this is the value it has to you because it helps to
generate revenue for your company. Why will not the result of
that be some fair price where the artist is compensated and you
make money?
Mr. Frear. Well I think that----
Mr. Coble. The gentleman's time has expired. You'll be very
brief in your response, Mr. Christian.
Mr. Christian. All right. So one response will be glad to
deal with you directly on that, if I could, at some point.
Mr. Cicilline. Of course.
Thank you, Mr. Chairman. I yield back.
Mr. Coble. I thank the gentleman.
The gentle lady from Texas, Ms. Sheila Jackson Lee.
Ms. Jackson Lee. Chairman, thank you so very much for this
hearing and I am excited to see so many of you that I have
worked with. I almost feel like calling the roll.
Ms. Cash, thank you for the music I enjoy of your dad and I
am sure of your entire family. Thank you so very much.
It is good to see Mr. Sherman.
It is good to see Mr. Warfield; we worked together before.
Mr. Van Arman, Mr. Christian.
And Mr. Paul Williams and I could be considered brother and
sister, we have seen each other so much and appreciated your
work. Thank you so very much for what you do for children in
teaching children about music.
Chris Harrison, Mr. Huppe, I believe the name is, or did I
add a ``P'' on it that I should not have?
Mr. Huppe. That is perfect.
Ms. Jackson Lee. Thank you, sir.
And Mr. Frear, thank you so very much.
Let me also just put on the record that I hope that this
Committee, if it is appropriate, will have a hearing on the
DIRECTV/AT&T merger just for the fact that content is included
in that as well.
To the witnesses here, my delay was provoked by the fact
that this is a year anniversary of the Shelby case, United
States Supreme Court case that, in my opinion, dismantled the
voting rights of this country. And there is a hearing going on
in the United States Senate that is very important. And I would
almost say that many of the artists that you represent,
performers, benefitted on their opportunities to vote because
of the Voting Rights Act. So I apologize for my delay in coming
to the meeting. But this is no less an important hearing. One
of the reasons why I dashed in here to be here.
We have gone through this before and I think I have made
clear that I think that we have an issue that should draw the
interest of all in the recognition of the talent of the artists
but also to understand, I have tried to take some time to
understand the workings of radio and the expense that they
incur. And so, I am prepared to be in this fight for a way
forward. And I will pose my questions in that context.
So I would ask both Mr. Warfield and the representative
from Pandora, first of all, does the XM deal sound attractive
in its construct for the pre-1972 artist, the pay structure?
And I will just say this: In the early morning hours of coming
here and listening to radio, I heard that Diana Ross think she
has got some music pre-1972, was going to be at one of our
venues here in this area and apparently they said something
about a national tour. And apparently they felt very confident
that there would be standing room only. These artists are
attractive, they are still bringing in crowds, we still love
their music as we will do in years to come for those who are
now. So Mr. Warfield, if you would, I would appreciate it.
Mr. Warfield. As representative of the NAB, we have not
taken a position on the pre-1972. What I would say is that our
members, if they are participating, and I would probably argue
that most of them are paying those fees in the digital arena,
they are not looking for ways to avoid that. You know, we have
some concerns of whether or not there may be some unintended
consequences as a result of it. So we are sort of studying that
issue, but we are not taking a position to oppose the bill.
Ms. Jackson Lee. Great. And would you continue to study it
for me, because I think your insight is going to be very
important to a lot of Members?
Mr. Warfield. Yes, ma'am.
Ms. Jackson Lee. So I would encourage you to do that.
Mr. Harrison?
Mr. Harrison. If Congress decides that protection for pre-
72 is an issue that needs to be resolved, we would support the
position of the U.S. Copyright Office which suggested a full
federalization so that not only do consumers get the benefits
of the copyright law, for example, the right of fair use, but
artists will also potentially get their right to terminate
their transfers under Section 3.
Ms. Jackson Lee. You just opened a door with respect to how
we construct what may be most effective. So in the time that I
have, if we approach this from a comprehensive perspective, I
would like to have anyone who will press their button and tell
us what do want in the comprehensive approach that will pass
the House, pass the Senate and get signed by the President,
which is what I want to see happen and not go another decade
without a response that I think is so very important.
I don't know who wants to start. I am looking at Mr.
Williams. What would be good if we just looked at the whole
picture, said we want to answer everyone's concern, what would
be good to have in that comprehensive bill?
Mr. Williams. Well I think, first of all, we have to work
together. I mean, we create a product which you all deliver and
we are eternally grateful for that.
Incidentally, thank you for your service. What you did this
morning was incredibly important, as well.
You know, I am 73 years old. We operate under a consent
decree that is about a year younger than me. And while almost
everything on this 73 year-old body works pretty good, there
are parts of that consent decree that need to be dealt with.
They just simply don't work anymore. We have no right of
refusal. We have no right of refusal so somebody can begin
using our music immediately before they have even told us how
they are going to use the music. You know, to prepare, you
know, an appropriate bill for, you know, this is what your rate
is going to be. We need information.
People begin using our music before we even have that
information. So the consent decree has certain elements that
can be changed. For your support in our efforts at the DOJ are
going to be incredibly important. We need a faster and a
cheaper rate-setting process. To go to rate court costs
millions and millions of our members money. And arbitration
would be so much similar. It would be a huge part of that.
You know, to allow our members, you know, right now we are
existing under an all-in or all-out rule that has been imposed
upon us so that the major publishers who want to be able to go
directly and license certain rights separate and it is a right
I believe they should have, are not allowed to have that.
Mr. Coble. The gentle lady's time has expired.
Mr. Jackson Lee. Well let me just say, Mr. Chairman, thank
you for your indulgence. And I am ready for all of us to come
together and craft a portion of what Mr. Williams said. And I
know others did not get a chance to answer my question. I would
appreciate it if I could hear some of the comments in writing
back to the Committee so that we could work on in the way that
Mr. Williams has already laid out.
I thank the gentlemen, the Chairman and the Ranking Member,
and I yield back.
Mr. Coble. You are indeed welcome.
I want to thank the panelists and those in the audience who
have been here now for almost 3 hours. By the way, the room
must be cleared by 2 o'clock because of a scheduled hearing but
today's hearing has been concluded. Thanks to all for
attending.
Without objection all Members will have 5 legislative days
to submit additional written questions for the witnesses and
all additional materials for the record.
The hearing stands adjourned.
[Whereupon, at 12:51 p.m., the Subcommittee was adjourned.]
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