Proposed Legislation May Change the Face of Internet Radio

Although Internet radio is growing in popularity, many argue that high royalty rates are stifling its growth. Companies like Pandora devote a substantial amount of their revenue to securing music licenses. As a result, Pandora lost $20 million on $81 million in revenue in the first quarter of 2012.

The Internet Radio Fairness Act, co-sponsored by Rep. Jason Chaffetz (R-Utah) and Sen. Ron Wyden (D-Ore.), seeks to lower royalty rates paid by Internet radio providers. It would make Internet radio stations subject to the 801(b) standard of the Copyright Act, which is currently applied to cable and satellite radio providers like SiriusXM.

Under 801(b), the Copyright Royalty Board must consider a number of factors when determining statutory royalty rates. They include maximizing the availability of creative works to the public; affording the copyright owner a fair return for his or her creative work and the copyright user a fair income under existing economic conditions; and reflecting the relative roles of the copyright owner and the copyright user in the product made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, risk, and contribution to the opening of new markets for creative expression and media for their communication.

Meanwhile, rates for Internet radio station are currently calculated using the “willing buyer, willing seller” method, which requires the Copyright Royalty Board to determine the current market rate for music licenses. Because there is no functioning “market” for these licenses, proponents of the Internet Radio Fairness Act argue that the standard leads to inconsistent results and higher rates than those paid by cable and satellite radio stations.

Critics of the bill, however, argue that lowering the rates will harm musicians and other copyright holders. Therefore, many favor an alternative bill that would level the playing field by making satellite and cable providers subject to the current Internet radio standard.

The legislation is still in its infancy and will likely be debated well into next year. We will continue to monitor its progress and provide updates as they become available.

For more information about copyright protection, I encourage you to contact me today by phone or email to schedule a consultation.

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