There were six witnesses, three who supported the Internet
Radio Fairness Act (IRFA), and three who opposed it. While this may
suggest that the testimony was balanced, one thing to note is that there was
only one artist (Jimmy Jam) and one economist (Dr. Jeffrey Eisenach), and both
of them were opposed to the IRFA. Neither of those stakeholder groups are
as one-sided as their testimony suggested -- particularly the economist’s
market analysis favoring the “willing buyer, willing seller” standard that a
recent Brookings paper
disagreed with, which was also highlighted in a DisCo post
by CCIA’s Matt Schruers.
Michael Huppe, President of SoundExchange, claimed during his testimony that:
“The entire music industry stands united against the IRFA.” That
statement is completely false. The Internet Radio Fairness Coalition has
a fact
sheet quoting several artists who support the IRFA. Huppe also had a
memorable exchange with Representative Jason Chaffetz, as Politico’s Morning Tech reported this
morning:
At yesterday’s House IP subcommittee hearing on music
licensing, Jason Chaffetz had a testy exchange with SoundExchange President and
Internet Radio Fairness Act opponent Michael Huppe. Pressing Huppe for
an answer on the portion of revenue Pandora provides to SoundExchange, Chaffetz
got tired of waiting for an answer. “Don’t tell me you don’t have permission
from your mom,” Chaffetz said, seeking an answer on the portion of revenue
Pandora provides toSoundExchange. “With all due respect, my mom is not here
today,” Huppe replied, before telling lawmakers that Pandora’s support makes up
roughly a third to half of their revenue.
Later in their conversation, Chaffetz also asked Huppe to
point out even just one other digital music company who's been successfully
profitable, and he could not. Chaffetz remarked that Internet radio
should be thriving far beyond just Pandora. He pondered why more
companies aren’t getting into this business, and was skeptical of other
panelists who seemed to think Pandora should just sell more ads.
Joseph Kennedy, Chairman and CEO of Pandora, was questioned heavily, as to many
this bill seems to be solely for the benefit of Pandora. As the
Chaffetz-Huppe conversation demonstrated, however, the only reason that it
appears that way is that Pandora is one of the few remaining Internet radio
companies after unsustainable rates have throttled the rest of the Internet
radio sector into extinction. David Pakman, a VC and Partner at Venrock,
had great prepared
testimony on this theme, explaining why there are not many competitors to
Pandora, as his colleagues are deterred from investing in music startups:
The digital music business is one of the most perilous of
all internet businesses. We are skeptical, under the current licensing regime,
that profitable stand-alone digital music companies can be built. In fact,
hundreds of millions of dollars of venture capital have been lost in failed
attempts to launch sustainable companies in this market. While our industry is
used to failure, the failure rate of digital music companies is among the
highest of any industry we have evaluated. This is solely due to the
over-burdensome royalty requirements imposed upon digital music licensees by
record companies under both voluntary and compulsory rate structures. The
compulsory royalty rates imposed upon internet radio companies render them
non-investible businesses from the perspective of many VCs.During questioning, Pakman explained how currently there is
not a market for digital music businesses, because there are almost no buyers
who can afford the licensing rates. He added that Pandora has done a
great job exploiting the only two business models available to it: users
pay (for its paid version), and brands pay (through advertising).
Bruce Reese, President and CEO of Hubbard Radio, was there on behalf of the
National Association of Broadcasters (NAB), who support the IRFA, especially as
their terrestrial stations are beginning to expand into digital radio.
Reese faced scrutiny from Congressmen who disagreed with the IRFA failing
to address the lack of a public performance right for terrestrial radio.
That is not currently a part of this bill, but given how frequently it
came up, it may be addressed in later sessions of Congress or other
legislation, whether it’s a later draft of the IRFA or a separate bill, given
how piecemeal these laws seem to occur.
All in all, I can see why the title of the hearing conspicuously included “Part
One” -- there are going to be more conversations about this bill, and the
complex issues of music licensing.
