Conservative groups dump on Pandora's royalty legislation

On Capitol Hill tomorrow, Pandora will argue the Web radio services need to pay less for music.

(Credit:Greg Sandoval/CNET)

WASHINGTON, D.C.--It doesn't take a sophisticated algorithm or genome project to know that Pandora's pitch for a new music royalty rate has been a dud.

Pandora says Web radio services pay too much in music royalties and is backing The Internet Radio Fairness Act. If passed, this federal legislation would reduce the rate these streaming services would pay. Pandora gets another chance tomorrow to convince the public and lawmakers of the bill's necessity during a hearing before the U.S. House subcommittee on Intellectual Property, Competition and the Internet.

The music industry, which will also send representatives to testify at tomorrow's hearing, is throwing its big guns against the bill. Not only have a large number of artists, including Rihanna and Katy Perry, come out against it, but now even conservative think tanks are criticizing the legislation.

The American Conservative Union, Citizens Against Government Waste, and Taxpayers Protection Alliance have all written letters opposing IRFA.

Maybe Pandora's managers saw big tech companies rout the Stop Online Piracy Act (SOPA) and thought Washington politics would be easy. SOPA was crushed last January when the opposition was able rally public opinion by painting it as a threat to free speech So far, Pandora's pitch about IRFA -- that it will benefit music and tech companies by creating more jobs and opportunities -- has fallen flat. And in the case of SOPA, opponents were able to send Republican supporters running for cover. With the recent support from conservative groups, the entertainment industry seems to be covering its right flank.

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To the music sector, Pandora's argument goes sometime like this: to help you, we need to pay you less. This isn't going to convince many in an industry that has seen revenue shrink by more than half over the past decade and heard scores of similar claims. IRFA would bring Web royalty rates more in line with those paid by satellite and cable music providers. The music industry supports a competing bill that would require satellite and cable radio providers to pay a rate closer to the one that Pandora currently pays.

Wall Street has lost a lot of confidence in Pandora. Not only were persistent rumors about an alleged plan by Apple to launch a Pandora competitor pressuring Pandora's stock but the share price fell after news broke earlier this month that more than 100 music artists were criticizing IRFA. If the bill fails to pass, Pandora won't be cutting costs anytime soon.

Rogan Kersh, a political science professor at Wake Forest University who studies lobbying, told Businessweek today: "When the very artists they are streaming -- the artists they are featuring, the artists that are even cooler than Pandora -- start to push back, that's a real bind for them. It's a major lobbying setback."

Come tomorrow, Pandora will start fresh. Tim Westergren, the affable cofounder of the company, is making way for CEO Joe Kennedy (at least he has the right name for Washington politics), who will testify on Pandora's behalf. Some of the others testifying include David Pakman, former CEO of eMusic who is now a venture capitalist; Jimmy Jam, a music producer and artist; and representatives from SoundExchange and the National Association of Broadcasters.

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Musicians Slam Pandora's Plan to Slash Their Pay

What seems like the lineup for a Live Aid benefit concert is actually a letter signed by 125 singers opposing Pandora's attempts to cut artists' pay when music is played over Internet radio.

Recording stars including such notables as Jackson Browne, Colbie Caillat, Common, Cee Lo Green, Billy Joel, Journey, Maroon 5, Katy Perry, and Frankie Valli said in the letter that while they are "big fans of Pandora," they can't countenance the online music company's lobbying to slash royalties paid to recording artists when their songs are played.

In a petition sponsored by SoundExchange and musicFIRST, and published in Billboard magazine, the signatories expressed support for Pandora's successful IPO and recent revenue growth. But the open letter also firmly criticizes the company's tendency to call on the government to "gut the royalties that thousands of musicians rely upon."

"That's not fair and that's not how partners work together," the letter states.

Congress has previously intervened in the ongoing struggle between artists and Internet radio companies. During the Copyright Royalty Board's (CRB) last rate-setting process, U.S. legislators helped to negotiate a short-term solution that kept Internet radio companies from paying more than 100 percent of their revenues in royalty fees. But that agreement is about to expire and Pandora founder Tim Westergren believes that the lower royalty rates should be a permanent fix.

"The Internet Radio Fairness Act (IRFA) is the right permanent solution. We look forward to partnering with all parties on building a sustainable and equitable future," Westergren said in a statement.

Congress is currently considering the IRFA, which of emacted could slash royalties paid to musicians and artists when their songs are played over Internet radio by 85 percent, according to musicFIRST's news release.

Westergren said passage of the IRFA would "mean more jobs in a sustainable industry, more choices for listeners, and more opportunities and revenue for working artists and their record labels."

"When the digital music sector is allowed to grow and innovate, everybody wins," he added.

MusicFIRST executive director Ted Kalo begged to differ.

"We all want Internet radio to succeed but it won't if it tries to do so on the backs of hard working musicians and singers," he said.

Last week, Pandora filed a lawsuit against the American Society of Composers, Authors and Publishers (ASCAP) over what it considers exorbitantly high royalty rates. The suit asks the court to impose more "reasonable" fees for the right to stream songs governed by ASCAP, which represents 435,000 U.S. composers, songwriters, lyricists, and music publishers.

In response, Michael Huppe, president of non-profit performance rights organization SoundExchange, pointed to the deletrious effect lowering royalty rates would have on tens of thousands of recording artists who "rely on this digital performance revenue stream to make a living."

"It is important that we protect artists and the long-term value of their music, which is, after all, the foundation of Internet radio," Huppe said.

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