The Internet Radio Fairness Act, Explained... Sort Of

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For many years, my other show here at WNYC, New Sounds, was distributed nationally by NPR. And I would occasionally hear from musicians that they knew when I had played their music because they’d get a royalty check. Some of them were not getting airplay anywhere else (New Sounds focuses on musicians working in the cracks between the usual genres), so they knew just what an appearance on a nationally-syndicated show was worth. 

Eighteen cents.

Give or take a few pennies, that was the amount these folks would get in their royalty checks. But that’s okay, because radio play was never meant to be how a musician earned a living: it was meant to promote the music so people would buy the record and/or go to the concert. That’s how you earned a living. 

I’ve been thinking of this a lot this week because of a bill before Congress called the Internet Radio Fairness Act.  A lot of people are writing about the IRFA, and you’ll find that reading about it is a surefire cure for insomnia.

So let’s see if we can answer a few basic questions about the IRFA.

Who’s in favor of this Act?

Spotify and Pandora and other internet radio providers. 

Who’s opposed?

Many musicians and most record companies – an unholy alliance formed around this one issue. 

Okay, you can stop now. I hate big corporations like Pandora and Spotify, even if I use their services. I love music and musicians. So I know whose side I’m on. 

Not so fast, Sherlock.  The group representing those musicians, and the record companies who usually skim 50% (yes, half) of all royalty payments for themselves, is SoundExchange, which was started as an “unincorporated division” of the RIAA.  You remember the RIAA, right?  Bringing six-figure lawsuits to a grandmother near you?  Now, as one commenter below has pointed out, they’ve been independent since 2003.  But this is still not a simple good-vs-evil thing.

Oh. Well, does Internet Radio need a Fairness Act? 

The internet radio folks say they do.  They say that they are currently not able to turn a profit because so much of their revenue has to be paid to artists and record companies.  They say this is unfair because terrestrial radio (real live old-school stations like us) and satellite or cable radio stations pay way less than they do, making it harder for them to compete.

Is that true? 

Well, the Electronic Frontier Foundation, which sides with Pandora and Spotify, reports that “internet radio services like Pandora pay about 50% of their revenues to record labels and artists, while satellite radio pays only about 10% and traditional AM/FM stations pay nothing.”

Those numbers might be open to interpretation – we do in fact pay an annual blanket license fee that allows us to play music on the air, and which provides musicians with those welcome $0.18 checks on occasion.  But yes, internet radio does have a tougher path to a break-even point.

So why don’t we just make regular radio and satellite radio pay more?  Wouldn’t that be fair?

Whoa, let’s not hop on the express train to Crazy Town here! Now you’re sounding like one of those record company types who believe they gave away the store back in the 30s when they agreed to let radio play a promotional role for the music and now want to revisit how that works. 

Seriously, you know what would happen if radio stations had to pay Pandora-type royalties to the music industry?  There’d be even less music on the radio than there is now.  Way less. And let’s not forget that radio did a superb job over the past century of spreading music far and wide; careers – a whole industry, in fact – came to depend on it. That relationship has had its ups and downs, but that kind of thinking would effectively kill it.  

Sounds like Internet Radio is getting a raw deal. I’m beginning to hate musicians. 

The feeling is mutual. Musicians used to love you. When you liked their music, you would buy it. They might even have made a living from carefully creating the sounds you heard on those singles, discs, and tapes. Now, you’ve got that damn app on your smartphone, so when you like their music, all you have to do is ask your internet radio station to play it.  And since it’s completely mobile, you can listen almost anywhere, almost anytime.  Where’s the incentive to buy the songs when they are there whenever you want them, on demand?  That’s way different from spending hours listening to the radio hoping to hear a favorite song – and accidentally discovering a bunch of new ones along the way. 

So internet radio is a completely different animal.

Bingo.  It is NOT a publicity or promotional tool.  These are heavily capitalized companies and their business is not selling music but making money.  That they make money by bringing music to you is a truly great thing – just not necessarily for the musicians.  The musicians’ argument, and it’s a compelling one, is that Pandora and Spotify pay such laughably small royalties (Spotify is less than half a penny per play, Pandora even less), that musicians are essentially propping up a major, multi-billion dollar capital venture and getting literal pennies in return. 

The musicians’ argument is cogently made by Damon Krukowski (of the band Galaxie 500) in a recent Pitchfork blog post, where he talks about these behemoth companies and their inability to turn a profit and asks, “why are they in business at all?”  He knows the answer of course: capital.  But we can’t unmake internet radio, any more than we can unsplit the atom.  It’s here, it’s queer (in the sense of being unusual), and we’ve got to deal with it.

Alright I’m taking a nap now.  My brain hurts. 

Mine too, especially since the digital landscape is still evolving. 

In 2007, the Copyright Royalty Board, a panel of judges who decide what the royalty rates will be, was convinced by Pandora to temporarily discount internet rates until 2015.  The IRFA is meant to give stability by providing a permanent fix. 

But a permanent fix may be premature.  Musicians don’t want their eighteen cent checks to turn into nine cent checks; on the other hand, how much can they reasonably hope to increase the royalties by?  Even if you double them, you’re still talking chump change.  Unless you’re Adele or Coldplay, both of whom, Pandora says, got a million bucks in royalties last year.  (Meaning they got 45% of that; their labels got 50% and their musicians the remaining 5%.)

No one knows what’s coming down the pike, so to try to legislate today for something that’s likely to be around in a very different form in a relatively few years is a fool’s errand.  One approach would be to just continue with the current system for a while, see if the internet radio companies can make a go of it, and then look at ways of tying royalty rates to the profits of those companies – almost like making the musicians shareholders instead of unpaid interns.