Pandora CEO Joe Kennedy and songwriter Jimmy Jam to headline music royalties hearing

The debate over the bill comes as the current royalty agreement that record labels and Internet radio services reached in 2009 is set to expire in 2015.

In his testimony, Kennedy will tell lawmakers that Pandora is set to pay nearly a quarter of a billion dollars in royalty payments this year — more than half of its revenue — because of the existing royalty rules. Cable and satellite radio, on the other hand, will pay 15 percent and 7.5 percent of their revenue, respectively, this year.

"The current rate-setting structure is a clear case of discrimination against the Internet and innovative services," Kennedy will argue, according to his written testimony, obtained by The Hill.

That message will also be echoed by Bruce Reese, CEO of Hubbard Radio, who is testifying on behalf of the National Association of Broadcasters, and David Pakman, a partner at venture capital firm Venrock.

In his written testimony, Reese describes the obstacles Hubbard faces in monetizing the radio broadcasts it streams over the Internet.

"Since webcasting began, the chief obstacle to developing a profitable streaming model has been the egregiously high royalty rates for sound recordings," Reese argues, according to his written testimony.   

Reese also says NAB will continue to oppose paying royalty fees for broadcasting music on over-the-air radio stations. Broadcasters currently do not pay royalties for playing songs over the air, which recording artists and musicians have criticized and fought against for years.

Representatives from the music industry have also geared up for the fight against Pandora's efforts to make changes to existing royalty rules, which they say will spark a "race to the bottom" in royalty payments to recording artists and musicians.

Prior to Wednesday's hearing, the National Music Publishers' Association is hosting an event on Capitol Hill that will feature the songwriters behind some of the most popular songs in the U.S., such as "Livin' on a Prayer."

Linda Perry, who composed "Beautiful," sung by Christina Aguilera, and BC Jean, who was behind Beyoncé's "If I Were a Boy," will be among the songwriters on hand at the event. The songwriters will perform their famous tunes and explain how Pandora's efforts to lower the royalty rates it pays to music labels and artists will also hurt songwriters.

The witness panel will get some star power from Jam, who wrote Janet Jackson's hits "Escapade" and "All for You" and "U Remind Me" by Usher, among other tunes. He also serves as the chair emeritus of the Recording Academy.

According to his written testimony, Jam will argue that the IRFA "is ironically named" because "it's hardly fair to ask the very people who enable Pandora's business to work for below-market payments." He will also argue that broadcasters should pay royalties for playing the sound recordings of music tracks on over-the-air radio stations.

"Those of us who make music are happy to share our gifts with the world, and we only ask that we be paid a fair wage in return," Jam says, according to his written testimony.

Also testifying on behalf of the music industry is Michael Huppe, president of SoundExchange, which collects royalty fees from Internet, satellite and cable radio stations and distributes the money to recording artists and songs' rights holders, and Dr. Jeffrey Eisenach, managing director of Navigant Economics.

Eisenach authored a report released by the musicFIRST Coalition on Tuesday that said the IRFA would "likely result in below-market rates" in royalty payments to musicians and record labels for streaming their songs. In the paper, he attempts to debunk several of the arguments that Pandora and supporters of the IRFA have made when pushing for the bill. 

"Forcing copyright owners to effectively subsidize webcasters through artificially low royalties is neither necessary to promote the growth of online music nor desirable from the perspective of innovation or consumer welfare," argued Eisenach, who is also a visiting scholar at the American Enterprise Institute.

"As long as government remains enmeshed in the process of setting rates, there will be calls from interested parties for Congress to intervene on their behalf," Eisenach said in the paper's conclusion. "There is no public policy case in favor of the IRFA, only a political one."