House Hearings on Internet Radio Royalties Cast Spotlight on Impasse

On the other hand, indie record producer Tommy Silverman of Tommy Boy Records argued, it isn't the webcasters who are doing the vital job of recording and mixing the artists' work. If they were, this would be a completely different story.

"These days, we are becoming increasingly dependent on the royalties due us from the flourishing business of Internet webcasting and satellite radio," Silverman testified. "These are businesses totally dependent on our work product - the creativity and high-risk investment of the record label, and the creativity, passion, and hard work of the recording artists. Without us, these businesses would not and could not exist.

"Yet what we continue to hear from the webcasting business -- one where more than 95% of the webcasting royalties are paid by only 20 large webcasters -- is that they want to pay less, not more," he continued. "And I think it's only fair that these large businesses whose very existence is totally dependent on work product of record companies [and] independent labels like Tommy Boy and musical artists, should fairly compensate those whose work they webcast.

"As to the fairness of the rates, they were determined by three impartial judges specifically selected for their knowledge and understanding of this industry, in a hearing process that ran for more than 18 months. It was a fair decision, and what irks me as a small business owner is the attitude expressed by a few small webcasters who became engaged in a grass-roots campaign primarily financed by large webcasters. They got people's attention, including some members of Congress, by claiming small businesses would be hurt. Okay, but what bothers me is that, in all their rhetoric, I never hear anything positive about artists who themselves are small businesses, or about the challenges facing independent labels - there's 2,000 independent labels in America. It's all about cutting the rates."

At one point during questioning, perhaps seeking to attain a Feynman Moment (on the order of quantum physicist Richard Feynman's historic questioning of builders of the space shuttle's solid rocket boosters, when he dipped an O-ring in his cup of ice water to see the cracks for himself), Rep. Hank Johnson (D - Ga.) sought to bring everyone down to earth by introducing a common analogy upon which everyone could agree.

"I'm lookin' at it like this," Rep. Johnson began. "Today is a hot day, and we all like lemonade, and lemonade and a hot day go well together. And I could put the lemonade in this cup here, or I could put it in this fancy looking bottle here, and I could sip it from each one or I could have a straw - the straw could be long or short, different colors. But the bottom line is, I'm getting the substance of that lemonade through some different medium, but it's the lemonade that's most important on a hot day."

Directing his analogy toward the two artists in attendance, he continued, "It's the music that people are being able to obtain through either webcasts or AM/FM radio or satellite radio. Why shouldn't the person who produced the lemonade get paid as opposed to simply the persons who put together the packaging that the lemonade happens to be served up in? Even though it may be a small business that is producing the packaging, shouldn't that lemonade developer get paid for the lemonade?"

"I'm an advocate for the rights of the artists," responded Cathy Fink, "and the fact that we deserve to be paid...Any artist, including Mr. Allcorn, is free to make his own independent deals with independent webcasters to say, you don't have to pay me. But I don't want that to affect whether or not I get paid for the lemonade that I made. If he wants to give his lemonade away for free, that's his right. We live in a great country to be able to make that kind of deal. I want to get paid for my lemonade. It costs me something, and I put my work into it."

That's when Joey Allcorn broke in: "If you want your lemonade in this cup, if you put the people that make this cup out of business, what are you going to put it in?"

"They don't have a business if we haven't made lemonade," Fink responded. Rep. Johnson sounded impressed. "It is the lemonade that gives rise to the packaging. Lemonade laying out on a table is no good. You can't get the straw into it."

"In the aspect of Internet radio," Allcorn responded, "you have to have those people to deliver the music. And if you want your lemonade, you have to have the people making the cup, whether it's the big cup, the little cup, however you choose to get it. You have to have a delivery method."

But every business has costs, Johnson stated, and he began listing an inventory of what lemonade producers might pay for sugar, lemons, ice...and he might have just gone on. "But what if the cup costs more than the lemonade?" Allcorn put forth.

"Then you have to find a different manufacturer," Fink interjected.

That might have been the most telling statement of the entire session, were it not for Committee Chairperson Nydia Velazquez' statement earlier that it would be preferable if this dispute were resolved without legislative intervention prior to July 15, when the new royalties rates take effect.

"July 15 is around the corner," stated Rep. Velazquez (D - NY), "and I hope that, the same way that you did back in 2002, the two parties on this issue come together and find a solution, a compromise...to this issue. I really don't think that Congress should be the best vehicle to resolve this type of issue."

By "you," the chairperson probably meant to refer to someone in the room who was party to negotiations, if there were any negotiations. But as all present indicated -- perhaps by virtue of the fact that they all represent small business interests -- the matter is out of their hands.