Tales of the Sausage Factory

Why You Need to Call Your Member of Congress to Save Internet Radio

As internet radio subscribers today may have discovered, a number of internet radio sites are participating in a “Day of Silence” to draw attention to the upcoming increase in internet royalty rates that will drive many of the smaller sites out of business (and probably drive up rates for others). On July 15, the rates paid by internet broadcasters will increase dramatically (retroactive to 2006), thanks to a decision last spring by the Copyright Royalty Board.

Supporters of internet radio are pushing members of Congress to support the Internet Radio Equality Act (H.R. 2060 and companion bill S. 1353 in the Senate). The Bill would fix the rates for internet broadcasts to match the rates paid by satellite radio providers (terrestrial radio providers pay no royalties, heck they are able to extort payola from the music industry). You can find much useful information and how to take action from this Free Press Action page.

UPDATE: Members of Congress Beg Industry Not To Force Them to Actually, Y’Know, Do Stuff.

And I want to stress that action to pass this bill is desperately needed. Why? Because conventional wisdom (CW) in DC is that this bill is unnecessary since everyone expects Soundexchange (which reps the music industry on royalty collections for online play) and the “internet radio industry” to cut a deal. As the CW goes, everyone has too much to lose if the rates really do go into effect — what with public radio stations and other smaller radio broadcasters stopping their streaming, popular streaming sites like Live365.com potentially going under and independent musicians losing their exposure and so forth — that the relevant parties must inevitably cut a deal. And, if all else fails, the DC Circuit may solve the problem by reversing the Copyright Board. So why pass a bill when the problem will take care of itself?

Unfortunately, experience tells me that it is precisely in situations like this, when everyone thinks a deal is inevitable, that there is the highest risk of things spiraling out of control and falling apart. Each party thinks that because “failure is not an option” it can hang tough and the other side must blink. Usually, this collapses into a last minute scramble to reach an 11th-hour agreement. But given the diversity of players and complexity of issues, I don’t think you can patch this up with a Marathon session that ends at 11:59 p.m. on July 14.

Consider, there is a huge disparity among the terrestrial radio broadcasters on what would be the acceptable dimensions of a deal. Industry giants like Clear Channel and Viacom will be willing to settle for a much higher rate than either small commercial operators or NPR. NPR, in turn, will settle at a much higher rate than the small non-commercial stations such as those represented by the National Federation of Community Broadcasters. The “internet broadcasters” have even more exagerated divisions by size and business model, with many of the smallest players absent from the negotiations. An industry with participants from Yahoo! to the archtypal individual in the basement is not going to come together on a “unified position.”

Worse, there are other elements of the structure besides the rate itself. Other issues include the reporting requirments and DRM management systems demanded by the music labels. While these are not addressed by the legislation (which only addresses rates), the negotiations among the industry participants will likely include extraneous issues in an effort to get a critical mass of industry players on board. Again, this favors the largest participants with the most diverse interests.

Finally, the largest players — particularly the big radio chains — have incentive to cut a deal that reduces the existing rate but still jacks up the price (either in terms of rates or interms of additional monitoring and reporting costs) for smaller players (both terrestrial broadcasters and internet broadcasters).

On the music side, there is considerable diversity of opinion among musicians about what to do here. On the one hand, independent musicians love internet radio as an outlet where they actually get play time and do not want to see the internet broadcasters strangled. On the other hand, it is very difficult for people to aggressively advocate to cut their own pay. A good analogy is where a union negotiates with management for pay and benefit cuts to stave off a business collapse. On the one hand, workers want to keep having jobs. OTOH, it is tough to swallow — particularly when the fat cats (here, the major labels and the large terrestrial radio chains) are still making out like bandits. There is a natural inclination of independent musicians to ask “why the Hell should people ask us to save internet radio at our expense when we already get shafted by the system? Aren’t we entitled to get a pay raise?”

So, in my opinion, I think getting a “comprehensive settlement” that eliminates the need for legislation is a lot harder than people think. And, even if there is a settlement, it is almost certain to tilt toward the interests of the largest industry players with some crumbs thrown to the little guys. Everyone will pose for the photo op looking exhausted and saying that it was a tough negotiation but something everyone can live with. Meanwhile, the cutting-edge tiny independents — who don’t even register on the DC policy meter but who most need protection of a set, fair rate to survive — will die a silent death offstage.

And, even if there is a settlement and it is livable, this decision will hang over internet radio providers like a damn Sword of Damocles, shaping the industry and forcing them to play by the rules set by the big music labels and the biggest radio operators because they live in fear of when the agreement expires and they have to go through all this again. A world where internet radio broadcasters have a right to music at a set rate is a very different world from one where they must go begging on bended knee to the copyright lords for the privilege of access to music that competes with other powerful interests.

So if you love vibrant and truly independent internet radio, and if you want to keep the door open so that the next generation of internet radio innovators can come into being, please, please, PLEASE call your Sentors and Representative and tell them to support the Internet Radio Equality Act. Tell Congress to resolve this issue for good, in a way that both makes sure performers get paid and still allows internet radio and community-based terrestrial radio broadcasters to defy both the major labels and the big broadcasting chains.

Stay tuned . . . .

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Tales of the Sausage Factory

Support the Internet Radio Equality Act!

According to this article, Rep. Inslee (D-WA) and Rep. Manzullo (R-IL) have introduced The Internet Radio Equality Act. From my brief reading, it nullifies the previous decision of the Copyright Royalty Board that started this mess, replaces the current langauge with the same standard used for satellite radio, and sets transitional rates until the next CRB hearing under the new standard.

Inslee has long been a friend to tech and new media and a foe of media consolidaion. In 2006, he joined with Markey and others to sponsor a stand alone NN bill after COPE passed out of the House Commerce Committee. Inslee has also been a champion on unlicensed access in the broadcast white spaces and supported municipal broadband.

The folks at SaveNetRadio now have an action alert on their front page to get nfolks to contact their representatives to get this through and signed into law before the new rates kick in on May 15.

I am reminded of an old saying that one of the professors at my law school alma mater was want to say: “Dogs get kicked; hogs get et.” Here, SoundExchange decided to act like a hog. As a result, they may get their cushy litte standard completely reset.

At least until May 15, stay tuned . . . . .

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Tales of the Sausage Factory

RIAA v. XM — Hard Cases and Clueless Judges Make for a Dangerous Mix

[Update: I’m aware the Audio Home Recording Act does not apply to video recordings. See my more detailed update here]

It’s an old cliche in Lawland that “hard cases make bad law.” To which I will now add: “and when you throw in clueless judges, the mix becomes positively toxic.”

Case in point, the recent decision by Judge Deborah Batts to deny XM Radio’s motion to dismiss a lawsuit by the RIAA for copyright violation. This case turns on the rather difficult interplay between the sections of the Copyright Act that provide a license for satellite radio, the immunity granted to equipment manufacturers under the 1992 Audio Home Recording Act, and the nature of the service offered by XM. It doesn’t help that, at the “motion to dismiss” phase, we gave the complainant (here the RIAA) the benefit of every doubt. To win, XM Radio would need to persuade Judge Batts that there is no set of provable facts under which the RIAA has a case.

Contrary to some of my colleagues (such as the eloquent and brilliant Art Brodsky in this post on the Public Knowledge website), I don’t think this was a slam dunk for XM. I actually think there is a complicated legal question here that needs to go forward for further analysis. That’s why I’m hiding over here on Sausage Factory for this one (if you check the Technorati rating for PK v. that for TotSF — you’ll understand what I mean by “hiding”).

Unfortunately, the language of Judge Batts opinion has — IMO — really, really, really bollixed things up badly. It calls to mind the awful results driven analysis in Jews for Jesus v. Brodsky when judges didn’t know squat about the internet and domain names, but sure knew they didn’t like these evil “cybersquatters” and boy were they gonna show ’em a lesson! The devil with the actual law or understanding the technology — we got us a heapin’ gavel of JUSTICE to whack you’re ass!

Batts opinion reads rather the same way J4J did. She doesn’t understand the technology and doesn’t feel any need to do so. All that matters is that someone seems to be making money that she thinks should go to the music mafia instead, and by God is she gonna get ’em! So she fixes on the wrong details and creates potential havoc for the likes of Tivo or anyone else making a PVR integrated into a receiver that picks up a subscription video or audio service.

The real issue in the RIAA v. XM case, and where Batts goes horribly, tragically, gut-churningly wrong, below….

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Tales of the Sausage Factory

How Broadcasters Make Lobbying Lemonade Out of National Catastrophe Lemons

Jim Snider at New America Foundation has written an excellent piece extensively documenting how broadcasters leverage their response in national emergencies and support of charitable causes to get special regulatory goodies and rules that keep competitors out. You can dowload a copy here.

While in one sense not news to anyone in DC, most people are unaware how broadcasters shamelessly take the coverage of local charity events or other efforts (which (a) are local news and so worth doing anyway, and (b) other companies routinely do) and use them to justify many billions of dollars in privileges such as must-carry rights on cable systems and limiting the ability of rivals such as satellite radio or Low-Power FM to compete. A bit of advocacy expounding, and a few thoughts on Jim’s paper and policy recommendation, below.

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Tales of the Sausage Factory

Satellite Radio Has Good Political Sense, NOT

Normally I like XM and Sirius just fine. But this rather sad attempt to claim they complied with the terms of their license by designing interoperable radios, but not producing them, makes me laugh.

Normally, I wouldn’t care (much) if XM and Sirius want to go all anticompetitive against each other or if the FCC lets them. But with a Senate bill pending to cut off satellite radio’s traffic and weather service, I’m not sure I’d pick this moment to look like I’m flouting the law. But hey, what do I know?

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Tales of the Sausage Factory

Memo to RIAA: It's not the “piracy” — your music sucks

For about five or six years now, I’ve been hearing the music industry folks piss and moan about how downloads are killing their profits. My usual response has been to observe that (a) while true that CD sales declined in 2001-2004, those were also years of general economic recesion and it was no surprise sales dropped (the music industry has been pretty quite about this since the CD market rebounded along with the economy in 2005); (b) if you put out an over-priced crappy product, the market will respond.

The problem is that most executives in the entertainment industry have enjoyed their monopoly status for so long that when the market finally responds, they get caught completely by surprise and usually enter a state of denial. (This is equally true for broadcasting and movies and cable, al of which have spent the last ten years or so busily consolidating and producing predictable products. Eventually, sales and ratings decline. And these guys are are surprised and looking for some regulatory fix they can plug to solve their “problem” — like broadcast flag or limits on satellite radio.) As a result, they don’t want to hear that they need to stop abusing their customers and work for a living.

A recent poll provides one more piece of evidence which I predict the music ndustry and their lap dogs in Congress will continue to blissfully ignore. A recent poll shows that most music fans don’t “steal music” and are very happy to pay for quality products — particularly things like downloading that really suit their needs. But music lovers are tired of being treated like trained seals expected to buy whatever the music industry offers at whatever price they chose to sell it in whatever format the music industry insists on providing.

Why this trend is so shocking in the music industry when we see it in a variety of other industries (have YOU driven a Ford lately? Probably not, because they offer crappy behemoth-class cars instead of better fuel efficient ones) I have no idea. I guess being a cartel gives you such a sense of security you forget about that whacky free market you’re always praising in Washington.

Stay tuned . . . .

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Tales of the Sausage Factory

Tales of the Sausage Factory: Goodies for the Broadcasters, Zip for the Public

Only in Washington would the Clear Channels of the world, those great champions of efficiencies and deregulation, declare that their monopoly on local content must be protected with regulation. And only in Washington would the deregulatory anti-big-government Republicans lap it up with a spoon. The National Association of Broadcasters (NAB) has petitioned the FCC and Congress to prohibit the new satellite radio competitors from providing local content (mostly traffic and weather). Of course, this is moving at hyperspeed, while the effort to impose real public interest obligations on the broadcasters moves at one quarter impulse. Still, I can’t help stirring the pot at the FCC and seeing what bubbles up.

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