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Battle brews between recording industry and Internet music providers

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The fiscal cliff might be getting all the headlines, but another battle is brewing in Congress, pitting the recording industry, a traditional source of Washington power, against Internet firms using an upstart technology.

WATCH AND COMMENT: Sunlight Live will webcast the hearing and provide data on the behind-the-scenes influence.

But in a departure from last year's struggle over the Stop Online Piracy Act, better known as SOPA, which favored entrenched media firms like Walt Disney and Time Warner while drawing opposition from technology firms like Google and Reddit, this time the bill at the center of the controversy favors the upstarts. The Internet Radio Fairness Act would lower the royalty fees that sites like Pandora pay out to recording companies and artists. 

The House Judiciary Subcommittee on Intellectual Property, Competition and the Internet is holding a hearing on the measure Wednesday at 11:30 a.m., which the Sunlight Foundation Reporting Group will be covering on Sunlight Live. The bill's sponsor, Rep. Jason Chaffetz, R-Utah, is a member of the subcommittee.

Pandora has claimed that it needs lower rates to survive. Currently, they pay about 54 percent of their revenues to the recording industry while cable radio provider Sirius XM pays only 8 percent. On the other side, Ted Kalo, executive director of the MusicFirst coalition, said Pandora should get more revenue from advertising.

Currently, the Copyright Royalty Board, a federal panel whose three members are appointed by the Librarian of Congress, sets royalty rates using a market-based standard to determine the royalties paid out by Pandora. The board uses a different standard for cable and satellite radio that includes whether the rates would hurt the industry.

The dispute is playing out in the traditional sphere of K Street but also on social media and in public relations. While the recording industry and its allies have contributed far more to members of Congress than the upstarts, Pandora and its allies are trying to even the score with high priced lobbyists.

The Recording Industry Association of America spent $5.7 million lobbying last year and nearly $41 million since 1998. Its political action committee, employees and their family members have contributed $3.5 million to federal campaigns since 1989, according to the Center for Responsive Politics. Coming in on RIAA's side are big unions like AFL-CIO, which has given more than $15 million to federal candidates and committees over the same period, according to CRP. The NAACP is also opposing the bill.

But Pandora isn't alone in the fight. Joining them are the Digital Media Association (DiMA), Clear Channel – a huge radio station operator that has branched into the online world -- the Consumer Electronics Association (CEA), and the Computer and Communications Industry Association (CCIA); the five organizations have combined to spend $58 million on lobbying since 1998 and contributed at least $4.6 million to federal candidates and committees. Clear Channel is the big campaign contributor of the group and CEA, DiMA and the CIAA spend the most on lobbying. In October, the groups and others formed the Internet Radio Fairness Coalition.

As in the battle over SOPA, Pandora's allies are banking on tech-savvy consumers to mobilize in support of Internet radio, according to Greg Barnes, a lobbyist for DiMA and former counsel to the House Judiciary Committee. It has 175 million worldwide users.

“We’re counting on these individuals to respond once again by contacting their Member of Congress and asking him or her to support one set of rules for cable, satellite and Internet radio,” Barnes wrote in an email.

In an October blog post, Pandora founder Tim Westergren touted the good that Pandora has done for artists, saying that it will pay more than 2,000 artists at least $10,000 over the next year. Pandora also has a website that shows supporters how to send a message to their member of Congress. 

Since the bill was introduced, Pandora has garnered seven members of Congress to co-sponsor the bill. Kalo of MusicFirst credits social media pressure from Pandora's supporters. “They had a number of Tweets at members of Congress per minute for three to five days,” Kalo said.

Kalo’s said his group, MusicFirst, is focused on a different social media strategy.

“We decided we were going to fight that social media strategy…with heartfelt correspondence from people whose livelihood would be affected by the legislation.” Kalo saw Pandora’s Twitter strategy as ineffective.

“Messages, due to the limitations of Twitter, didn’t tell a member of Congress that someone was actually a constituent,” he added.

He said that after the performers’ unions alerted their members of the bill, which they claim could slash royalties paid to musicians by 85 percent, 11,000 letters went to Congress from “working class musicians all over the country” over one weekend.

Two weeks ago, MusicFirst also placed an open letter to Congress in Billboard Magazine signed by 125 artists opposing the bill.

As for lobbying the Hill, MusicFirst leaves that to its member organizations, including the RIAA, American Federation of Musicians, the Recording Academy and SAG-AFTRA, whose lobbyists have been very active this week, Kalo said.

Pandora has also ramped up its inside-the-beltway efforts. The company's employees and their family members have contributed about $182,000 to federal candidates in the 2012 election, after giving only about $15,000 overall in prior years, according to CRP.

Pandora hired D.C. lobbyist Seth Greenstein of the Constantine Cannon in August, who did not respond to a request to comment. Its ally, Clear Channel, tapped Bruce Joseph of Wiley Rein the following month.

Because of the many issues up for consideration in the lame duck Congress, any version of the bill is unlikely to be voted on until the next Congress.