The Internet Radio Fairness Act: What It Is, Why It’s Needed

The 2012 campaign is almost over, which means Congress may soon be able to get back to business. One of the things it should prioritize is fixing a longstanding tax on innovation that most folks don’t know about, but they should:  the unfair legal treatment of Internet radio.

Internet radio is a favorite source of music for many, but there are relatively few big players in the medium. That’s because success in this space depends the ability to navigate through an obscure, rough-and-tumble neighborhood of copyright-land known as digital performance royalties. Thus far, that’s been a tough challenge: 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.

Streaming digital music is one of very few types of creative work for which the price of a license isn't set in private by buyers and sellers. Instead, it's set by a panel of three judges in the Library of Congress called the Copyright Royalty Board, once every five years via a trial-like process. Music labels and musicians are represented by a company called SoundExchange, a spinoff of the RIAA. On the other side of the aisle are digital radio services like Pandora, satellite radio (Sirius XM), and cable radio companies like Muzak. As part of the process, parties present witnesses and evidence about the value of recorded music and the technology for delivering it to people's ears. The three judges then decide what royalties each kind of music service will have to pay for the next five years...