House Hearings on Internet Radio Royalties Cast Spotlight on Impasse

Lawmakers debating whether Congress should stop the imposition of dramatically higher royalties on Internet streaming music providers heard testimony this morning from people involved in small businesses throughout the independent music economy: a private webcaster, two artists, two indie record producers, a public broadcaster, and the president of the nation's leading musicians' union.

But almost everyone in the room today appeared to agree on one thing: The ultimate resolution to the issue of how artists should be fairly paid for their contribution to commercial music, and how webcasters can equitably contribute to artists' compensation, was in the hands of precisely no one in attendance.

Members of the House Committee on Small Business on both sides of the aisle said they'd rather the government not intervene in this matter; and the lone webcaster present -- WOXY.com general manager Bryan Miller -- stated at one point that negotiations for fair performance royalties seem to be conducted recently "by press release."

Miller testified at another point that his station - a former terrestrial radio station that converted to the Internet, only to have to suspend its business last September and sell itself to a larger firm to remain in business - paid $32,000 in performance royalties in 2005. Now a part of Lala.com, Miller said his business no longer qualifies as small, and may find itself this year having to "jump the chasm" into the realm of so-called "normal" royalties rates. He's not sure what those are yet, or where WOXY will land once it crosses the chasm. Is it a million and a half? Six million? He's uncertain.

"I can guarantee that if WOXY.com had not been acquired and was still a stand-alone entity," Miller testified, "the new royalties would have been the end of the road for us at that point.

"So why should you care about Webcasters who are a hair's breadth from going under, even before they face the higher royalty rates?" he continued. "I would argue that we deliver so unique for artists and music fans that our existence should be supported and encouraged, and not hindered during the early years of our industry. Musicians stand to lose valuable exposure provided by Internet radio outlets. I believe that one of the reasons why millions of people tune into Internet radio every month is that they're looking for something new. In the past 15 years, rampant consolidation amongst AM and FM broadcasters has led to a general homogenization of radio programming, narrowing playlists, and fewer artists are being exposed. Consumers are now turning to Internet radio to discover new artists, and find something that they're not going to get via their local AM or FM radio station."

An example of someone whose work you'd never find on one of these stations is two-time Grammy award winner Cathy Fink. If you've never heard of her, that's because she's a children's musician whose latest CD - a copy of which she gave to Congress - teaches the virtues of good nutrition. Some of her work gets airplay on Internet radio.

For that, she would appreciate more than just a bronze-plated gramophone paperweight. "Selling CDs alone is not enough to support us," Fink testified, speaking on behalf of her group of artists and musicians, "and frankly, it can take several years to recoup the costs of each project. The royalties we receive from SoundExchange have been very welcome and valuable to us. To date, these payments have been fairly modest, but they make a real difference to a small business. For example, the amount we received from SoundExchange this year can cover a major expense such as the annual cost of insuring our equipment and instruments.

"We are indeed a small business," she continued, "and encourage you to see us that way. It is a very creative business, one about which we're extremely passionate. Our music is a valuable creation, it's the core of that business, and like any other product, deserves fair compensation."

Fink went on to say she testified before the Copyright Royalty Board earlier this year, and that she believes the three-judge panel was fair and impartial in its determination of a royalties system that best suits the dynamic nature of the business models they were assessing.

But Fink was not the only artist testifying. Country artist Joey Allcorn -- whose work pays tribute to the classic 20th century country musicians such as Hank Williams, Sr., and Johnny Cash -- stated at several points during today's testimony that the exposure his work receives through Internet radio is more valuable to him than any royalties he may receive from the small webcasters who play his work - and most of those, he admits, are quite small indeed.

"It's incredibly easy to buy music with Internet radio," Allcorn stated. "All the stations have Buy buttons that connect listeners to Amazon.com, iTunes, CD Baby, or the stations' own virtual stores, so I've been able to sell a lot of albums that way.

"Compare this to the frustration of broadcast radio," he continued. He told a story of a 2005 concert appearance in cooperation with a local radio station, where the station thought twice and decided not to play his music because it wasn't it's brand of country after all. After Internet radio took off, fans found him, and now he can play to houses packed with as many as 15,000 classic country fans.

"And that's okay for the major labels, because they would never sign us anyway," Allcorn went on. "My band doesn't sell enough albums to pay their electric bills; but with low barriers to entry into Internet radio, I can build my audience one listener at a time, one city at a time, with the music that I love. In a way, I guess you could call Internet radio the greatest grass-roots music movement ever.

"All this opportunity makes these drastic new royalties more bizarre to me," he continued. "Here's a new radio outlet that has broken the industry wide open for independent artists and small labels. It pays royalties to artists who don't get paid on broadcast radio, and is the only medium with a Buy button next to the song titles. Yet three judges from somewhere I've never heard of decide to raise webcasters' royalty rates so they'll go out of business. And if that happens, my career and my small business and my fans will suffer."

Next: When life hands you royalties, you make lemonade...