Lawmakers introduce Pandora-backed music royalty legislation

A trio of lawmakers on Friday introduced legislation aimed at lowering the royalty fees paid by Internet radio stations so they become level with the rates paid by other digital radio services.

Reps. Jason Chaffetz (R-Utah) and Jared Polis (D-Colo.) unveiled the long-awaited Internet Radio Fairness Act, which has received the endorsement of online radio service Pandora. Sen. Ron Wyden (D-Ore.) introduced a companion measure in the Senate. 

The three lawmakers argue that Internet radio stations unfairly pay higher royalty rates than satellite and cable radio services do because they're placed on a different royalty-setting rate. They claim that these current royalty rules hamper innovation and discriminate against Internet radio stations.

"Fourteen years ago, when online radio was in its infancy, the incumbent interests were successful at getting laws passed to discriminate against the Internet," Wyden said in a statement. "This bill puts Internet radio on an even plane with its competitors, and allows the music marketplace to evolve and to expand — which will ultimately benefit artists and the Internet economy.”

The bill proposes to put online radio services like Pandora on the 801(b) standard of the Copyright Act, which is the same standard used to set the royalty fees paid by cable and satellite radio.

"It’s well past time to stop discriminating against Internet radio,” Chaffetz said in a statement.

According to statistics provided by Chaffetz's office, Internet radio services pay more than 55 percent of their revenue in royalty fees, while cable and satellite stations pay between 7 and 16 percent.  

While the National Association of Broadcasters stopped short of endorsing the Internet Radio Fairness Act, the trade group said it "strongly supports legislative efforts to establish fair webcast streaming rates."

Other than Pandora, the bill has received support from Clear Channel, Engine Advocacy, the Consumer Electronics Association and the Computer and Communications Industry Association.

But its introduction was not welcomed by the musicFIRST Coalition, a group comprising recording artists, musicians and music businesses that advocate for performance rights. The group argued that it would take money away from musicians and help Pandora rake in more profits.

“There’s nothing fair about pampering Pandora, with its $1.8 billion market cap, at the expense of music creators,” said Ted Kalo, executive director of musicFIRST. “We support rate parity that addresses the greatest inequity of all, the lack of a performance right for terrestrial radio, and is fair to music creators."

Instead, musicFIRST backs a competing draft measure from Rep. Jerrold Nadler (D-N.Y.) that proposes to put cable and satellite radio services on the same royalty-setting standard as Internet radio. That would make cable and satellite radio stations pay higher royalty fees to artists.

Broadcasters do not pay royalty fees to artists when they play their music on traditional over-the-air radio stations. To close that gap,  Nadler's draft bill would also make traditional radio stations pay a higher fee for live-streaming their broadcasts online.