Ludacris, meet Grover Norquist.
The rap star and the anti-tax activist are among a strange-bedfellows coalition lining up against legislation that would reduce the royalty rates that Internet radio stations, such as Pandora and iHeartRadio, pay to play songs.
A group of 125 celebrity recording artists — including Billy Joel, Jimmy Buffett and Britney Spears — signed a letter that appeared in Billboard magazine complaining that the legislation would gut artist income. Even more persuasive for lawmakers may be the opposition that has emerged from labor unions, which are concerned about musician pay, and Norquist, who is balking on free-market grounds.
“A bill that might have seemed to be a somewhat noncontroversial bill is now very clearly controversial, with significant segments opposing it that appeal to both parties,” said Ted Kalo, executive director of the musicFIRST Coalition of artists and record labels.
Although the music industry push-back is no surprise, the vigor of the campaign at this early stage in the policy discussion demonstrates that the stakes are high. Digital music streams are becoming increasingly popular, as evidenced by Pandora’s more than 1 million listeners, and record labels want to protect the lucrative online royalty rates they currently enjoy.
Traditional over-the-air radio stations have long broadcast songs for free, and record companies have failed for years to get them to give up their legacy exemption and pay royalties. Meanwhile, cable and satellite radio providers, such as SiriusXM, have struck deals to secure low royalty rates.
But Pandora and other Internet radio providers pay the highest rates; about half of their revenues go to royalties. Those companies expect their rates to increase during upcoming negotiations with the record labels if Congress does not intervene, as it did three years ago by passing legislation (PL 111-36).
Pandora CEO Tim Westergren said the agreement prompted by that law helped online radio survive, adding, “The short-term solution is about to expire, and we believe there should be a permanent fix.”
Radio providers and record labels are expected to sit down within the next two years to negotiate royalty fees for 2015 and beyond. The Copyright Royalty Board, a three-judge panel appointed by the librarian of Congress, determines the rates if the two sides can’t reach a deal.
Westergren argues that artists could actually make more money under lower rates, because more Internet radio stations would emerge and prosper. He contended that the nascent Internet radio industry could go under if rates are not reduced, although Kalo’s coalition questions whether that is true, given Pandora’s market success.