Washington • If Rep. Jason Chaffetz wants to drop the royalty rates for online radio to the same level paid by satellite and cable companies, he’ll have to overcome the loud and melodious protests of some of the nation’s most popular musicians.
The young conservative star from Utah will also have to tame some of the biggest names in Republican politics.
Chaffetz’s Internet Radio Fairness Act is getting slammed by the American Conservative Union, Citizens Against Government Waste and Grover Norquist’s Americans for Tax Reform. They see no reason why the government sets royalty standards on radio outside of traditional stations that use the public airwaves and they are incensed that Chaffetz’s proposal would set music royalties below what artists could get in direct negotiations.
“When the government sets the rate for music, it is enacting price controls, in opposition to what should be the agenda of a Congress that supports the market economy,” Norquist wrote in a letter to congressional leaders.
Chaffetz said Norquist is “totally misinformed” about his bill, and the Utah Republican doesn’t believe his plan violates any basic conservative ideals. Instead, he equates the higher royalty rates paid for online radio to a tax.
“I don’t think lowering the so-called tax is something conservatives would normally be opposed to,” Chaffetz said.
A House Judiciary subcommittee highlighted the policy fight in a hearing Wednesday.
Chaffetz’s bill would not only put online radio in line with the government royalty rates set for satellite and cable radio, but also make members of the Copyright Royalty Board presidential appointees who would have to be confirmed by the Senate. The three-member board is now picked by the librarian of Congress.
The measure is championed by Pandora, the largest online radio company, and traditional radio broadcasters, many of whom also stream online. That includes Craig Hanson, president of Utah-based Simmons Radio, which operates 12 stations including X96 and U92 in the Salt Lake Valley.
“We are willing to compete,” Hanson told The Salt Lake Tribune, “but I think we can’t have a double standard.”
Hanson estimated his business spends up to 10 percent of its net revenue on royalties for songs played over the public airwaves, but 30 percent and higher for songs streamed online, a rate determined by the number of listeners.
He calls the disparity between online radio royalties and those paid by cable or satellite distributors “grossly unfair” and blamed them for limiting growth in online radio.
At the hearing, Chaffetz made the same point, noting that MTV, Rolling Stone and Yahoo tried online radio services, but couldn’t make money. He blamed the rate structure.
“Technically, we have the youngest congressional district in the country,” said Chaffetz, referring to Utah’s 3rd Congressional District, which he represents. “And the younger generation is demanding Internet radio. Unfortunately, the financial model just doesn’t work, but we’ll get it there.”
He said growth in online radio fostered by his bill would greatly offset any reduction in royalty rates.
“This would be a better, more fair way to make sure that artists get paid,” Chaffetz told The Tribune.
Chaffetz began listening to Pandora about two years ago after his 15-year-old daughter showed him how to use the site, which allows listeners to pick a favorite performer and then delivers songs from similar artists. Chaffetz lately has set up Pandora stations for Foster the People and Frank Sinatra, he said.
He’s a strong supporter of Pandora, which has a free, advertising-supported option, or a subscription plan. Subcommittee Chairman Bob Goodlatte, R-Va., also noted he uses Pandora and may be open to “harmonizing” the royalty rates.
But the top Republican and Democrat on the House Judiciary Committee oppose the bill, highlighting the difficult path facing Chaffetz’s legislation, which is co-sponsored by Rep. Jared Polis, D-Colo.
Chairman Lamar Smith, R-Texas, sides with conservatives such as Norquist, arguing that Congress should stop requiring “compulsory” royalty licenses that inhibit a free market.
Ranking Member John Conyers, D-Mich., is fighting the bill because of its impact on the pay for artists, agreeing with a coalition of musicians from Pink Floyd to CeeLo Green.
Grammy-award winning songwriter Jimmy Jam represented those artists at Wednesday’s hearing. He said Pandora’s payments, while higher than other radio services, are still small, about one-tenth of a penny for the play of a song. He pressed Congress to reject the rate change for online radio and to force traditional broadcast stations to pay royalties to music producers, a broader policy fight that has raged for years.