Why we should not be too quick to judge Mr. Chaffetz along with his Internet Radio Fairness Act

I was struck by a continuing theme during the recent hearing on “Music Licensing Part One: Legislation in the 112th Congress” before the House IP Subcommittee (the “IRFA hearing”).  Mr. Chaffetz wants to do the right thing but he got some really bad advice.  There were flickers of connections between Mr. Chaffetz’ questions and other statements by the usual suspects (and many Google Shill Listers) none of whom really know anything about the music business but all of whom “make stuff up” (to paraphrase the classic words of David Lowery at the Future of Music policy conference).

For example, Mr. Chaffetz asked Jimmy Jam whether Jimmy thought that the allocation of royalties among the sound recording owners, featured artists and nonfeatured artists was “fair.”  Now why would he ask that question and why was he surprised that Jimmy did think the allocation was fair?  The issue was not part of the bill and to my knowledge and not been brought up by anyone.

First, the basic 50/50 split allocation between artist and sound recording is typical of the 50/50 split of revenue for non-royalty base priced sales in term recording artist agreements.  In fact, it was this exact issue that was present in the Eminem case.  Mr. Chaffetz’ staff was apparently unaware of this prominent case and the issue involved.  Moreover, prior to the passing of the laws that led to the Section 114(g) royalty and the split at issue in Mr. Chaffetz question, there had been clauses in recording agreements that anticipated this 50/50 split of revenues because record companies dealt with the issues in the other countries of the world–nearly all the other countries of the world–where such royalties were payable.

But most importantly, Mr. Chaffetz staff seemed to want to disregard the fact that most of the records by independent artists (lauded during the discussion of Pandora as a music discovery platform) are owned by the artist–so there really is no split of income because the artist gets both sides of the revenue stream.

Where did we find this question being raised?  By Google Shill Lister Public Knowledge offering free advice in their filing for the hearing.  No where else that I am aware of.

[T]he compulsory license distribution system can and should be amended to direct more compensation directly to artists. Rather than the statutory royalty splits discussed above, the law should distribute 50% of royalties to the featured artist, 5% to side musicians, 5% to back-up vocalists, and 40% to the record label. After all, copyright law’s ultimate purpose of incentivizing the creation of works is much better served by directing more payments to actual artists than by giving intermediaries like record labels take an unnecessarily large piece of the pie. This change in royalty splits also offers more structural protection to individual artists, who might be less able to engage in the ratemaking proceedings than record labels and webcasters.

Why should we pay attention to Public Knowledge?  Because Google is part of DiMA, CCIA and the CEA, all members of the Internet Radio Fairness Coalition?  Because Google is a benefactor of Public Knowledge?  Or some other reason?  It’s certainly not because Public Knowledge wants to try to raise a side issue of questioning the fundamental splits in order to increase the FUD factor among “individual artists” whoever they are.  But perhaps Public Knowledge meant to say independent artists, who make both sides of the split anyway!

Mr. Chaffetz also seemed interested in the fact that big companies who had been in the webcasting space apparently exited because they couldn’t make money.  (Specifically, Yahoo!, MTV, Rolling Stone and Microsoft.) This is not necessarily correct.

None of the music divisions of these companies were operated as stand alone entities and were all wholly owned subsidiaries.  What does this mean?  One thing it usually means is that the executives and offices that were part of the infrastructure costs were determined with reference to the parent company.  Meaning that if the parent operated in Manhattan, then the music subsidiary did, too.  If the company moved executives making Joe Kennedy and Tim Westergren level salaries into that subsidiary, they usually did not give up their corporate seniority or perks.  Sometimes there was a hardware solution (e.g., Zune) that didn’t work out.  So before you go down that slippery slope, look at all the facts.

Why are there not more stand alone webcasters?  I don’t know–what happened to Studebaker and DeLorean and the White steam powered car?  I liked all those cars, but that’s capitalism.

These are fair questions and I think that Mr. Chaffetz clearly is interested in doing what he can to help Internet radio as we all do.  Unfortunately, it seems that he got some really bad advice about how to achieve that goal.  This is particularly unfortunate because the IP Subcommittee is composed of some of the most experienced legislators anywhere on the planet when it comes to these issues, particularly Chairmen Goodlatte, Sensenbrenner, Coble and Smith, but really all of the returning members.  It’s a truly great committee.

Given that there seemed to be such a high level of interest from the other members in pursuing the fairness aspect of the bill, we take encouragement that Mr. Chaffetz fellow committee members want to see fairness done and will no doubt be invaluable resources to him should he decide to reintroduce his bill in the next Congress.

2 thoughts on “Why we should not be too quick to judge Mr. Chaffetz along with his Internet Radio Fairness Act

  1. It helps to see, that common sense can prevail, and that minds can be changed for the better.


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