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But, beyond the question of whether the parties are even willing to participate, could these sorts of negotiations actually be successful?  Copyright issues, as they are so detailed and technical given the complexity of the mechanics of the Copyright laws, are often resolved through negotiations - often at the urging of Congress.  Congress tends to believe that a negotiated solution is more likely to anticipate the issues that could arise than is an imposed legislative solution where one side totally prevails over the other.  But here, there are many parties involved who may not see eye to eye on the kinds of issues that might be discussed in any negotiation. 

Congress has called on the parties to bring people who can make decisions to participate in the sessions, yet who would that be?  On the recording industry side, it would seem that the 4 major labels, the association of independent labels, and the artist union representatives would be able to easily fit into a room to negotiate.  On the other side, while it might seem that the NAB is the appropriate party, the NAB itself does not pay royalties - its members do.  And its members are a diverse group.  There are many public companies that own stations, and hundreds of private ones. There are large market stations and small market ones - differing constituencies that have differed on performance rights issues in the past.  And, perhaps most importantly, there are many stations with differing interests as to what might be included in any negotiations.  Some groups have evolved digital operations while others are still focused almost solely on their broadcast operations.  Some have interests in waivers of the performance complement (which was an issue in the NAB-SoundExchange agreement on Internet radio royalties) while others don't.  Some do significant amounts of talk or news, while others are much more music intensive.  All these diverse interests would have to be taken into account in reaching any deal that would cover broadcasters - and two weeks with Thanksgiving in between does not seem to provide the time to reach a deal.  In fact, given that broadcasters for the most part believe that the issue is all but dead given the majority of the Congress signing on to the anti-performance royalty resolution, how do you then convince broadcasters nationwide that a deal is in their best interests when they have been so adamant against even talking about a deal.  Given all these obstacles, it simply does not look possible to have a deal in this time period - even were the parties to actually sit down and try to work something out.

So, if the parties are not sure to negotiate, and if the prospects of a deal in two weeks in late November are so slight, why bother with the letter?  One thought is that the letter is another well-orchestrated publicity move by royalty proponents.  Just like the MusicFirst petition filed at the FCC complaining about broadcasters supposedly boycotting musicians who supported the royalty (with little or no evidence of any real boycott by any commercial station), this letter has already generated press attention putting a spotlight back on the issue - attention that has perhaps flagged somewhat since the NAB had signed up its majority of the House of Representatives onto the resolution opposing the royalty.  Perhaps by trying to make the NAB look bad, the supporters of the royalty are trying to pry some of the legislators off their positions in favor of the NAB and against the performance royalty (see our post here about the potential for ways that the bill could move even with a majority now signed onto the anti-performance royalty resolution).

So, will any of this work?  Watch and see, as we should know whether negotiations take place very soon.

Senator Feinstein also identified another issue.  Under the manager's amendment (as in the House version of the bill), a provision of the law would prohibit any use of these royalties as evidence in any proceeding to set the royalties for ASCAP and BMI in a way that would reduce the royalty paid to those organizations to compensate songwriters for the public performance of the musical composition or musical work (the sound recording royalties addressed in this bill go to the performers and the copyright holders in the recordings - usually the record companies).  Presumably, the songwriters' organizations are concerned that high performance royalties for sound recordings could be used by broadcasters or other companies that pay these royalties (webcasters, satellite radio, cable radio or other digital music services) to argue that they could not afford to pay ASCAP and BMI royalties at the levels at which they are currently paid (see our article here, about the potential for contentious proceedings to determine new ASCAP and BMI royalties for broadcasters, where the sound recording royalty is not even a factor yet ).  However, the provision that is now in the bill could be read as prohibiting music services from introducing any evidence about the sound recording royalties to argue that the composer's royalties should be reduced, but would allow such evidence to be introduced by the songwriters to argue that the royalties should be increased.  In other words, the songwriters could argue that, as the sound recording royalties were higher than the composition royalty, and that the composition royalty should be increased - while the music service would be helpless to defend themselves against such evidence as the use of such evidence by the services would be prohibited by the law.  Senator Feinstein suggested that this one way street might constitute a denial of due process to the services, and that a more even-handed provision should be worked out before the final bill is adopted.  There is currently a provision in Section 114 of the Copyright Act, the section that first extended the sound recording royalty to digital services, that prohibits either party from introducing evidence of the sound recording royalty in proceedings dealing with the musical works royalty.

Senator Specter raised another issue.  At Senator Feinstein's urging, the bill proposes to use a single standard to set royalty rates for all services - whether they be broadcasters, webcasters, satellite radio or cable radio.  As we've written before, webcasters have had to pay under a "willing buyer, willing seller" standard, while satellite and cable radio have ended up with far lower royalties because their royalties were decided based on the standards of Section 801(b) of the Copyright Act.  The bill proposes to extend the coverage of 801(b) to all services but, like in the House Bill, the entire 801(b) standard would not be adopted.  As Senator Specter observed, the last of the four factors set out in 801(b) is omitted in the bill - the factor that looks at the royalties to determine if they at levels that will preserve the stability of the industries involved.  That factor was the factor relied on by the Copyright Royalty Board to cut the royalties that would otherwise have applied to satellite radio by half (see our analysis, here).  As we wrote, if the broadcast royalty were adopted, this would be a very important factor to take into consideration in setting a royalty rate for broadcasters.  According to Senator Feinstein at today's session, the record companies objected to the inclusion of this fourth factor, and certain webcast groups agreed to the 801(b) standard without the fourth factor.  Obviously, broadcasters and other services concerned about the lack of the final 801(b) factor will need to push to have this factor included in any final legislation that may be adopted.

Two amendments to the bill were offered by Texas Senator Cornyn, who said that the revisions to the bill with the small broadcaster provisions were a move in the right direction, but he was still concerned with whether the bill went far enough.  One amendment proposed to postpone the effective date of any royalty until the FCC held a rulemaking proceeding and determined that the royalty would not decrease diversity in the broadcast media.  This amendment was rejected by the committee with little discussion. 

The second amendment  proposed that, instead of the royalty, the FCC should establish a "do not play list", a list of artists who did not want their music played without a royalty.  This would address the claims of the royalty supporters that artists are exploited, as they have no right to tell broadcasters that they don't want their music played without a royalty.  Senator Leahy objected to this proposal, saying that it did not provide that artists who were included on this list could negotiate for compensation to be played - that instead it was an all or nothing proposal - either the artist could have its music played for free, or it would not be played at all.  Leahy did acknowledge that the idea was an interesting one that he would work with Senator Cornyn to modify.  The amendment was rejected without much further discussion, but should be considered for the future as debate over this issue progresses, as it may present a potential alternative to the royalty.

All of the Senators who spoke at the session urged the broadcasters to come to the table to negotiate the royalty.  This has been a common refrain at all of the hearings held on the bills in both the House and the Senate.  With a new NAB leader, will the broadcasters actually come to the table?  Time will tell.  But, there is no need to look into the crystal ball to determine that this issue is a real one that the proponents of this royalty will continue to aggressively push forward.   Broadcasters need to stay on the alert, and stay in touch with their Congressional representatives, to counterbalance this aggressive push on a bill that has cleared committees in both Houses of Congress, and may one day come to a vote which will finally resolve whether these bills will become law.

The disconnect over Internet radio was evident not only in the discussions of the revenues, but in the discussion of the meaning of Internet radio to artists.  Simpson started his testimony talking about three heirs of deceased musicians who were thrilled by their SoundExchange royalty checks as the musician they represented had not made any money during their lifetimes from their recording and touring careers.  He used this introduction to launch into a discussion of the need for this compensation to reward artists for their  performances as the world moves from a culture of possessing music to one where music is not owned but merely listened to through various platforms.  As musicians will no longer be compensated through the sale of the their records, they need to make up the revenue from lost sales through performance licensees such as those reflected by the CRB-imposed royalties.  Musician John Ondrasik of Five for Fighting echoed Simpson's points, contending that compensation through royalties puts food on the table of musicians, and was necessary to avoid discouraging new artists, thereby hurting the country's economic and cultural life.  Ondrasik stated that he had received about $9,000 in royalties from SoundExchange the prior year which, while it might not seem like much, had made a difference.

In counterpoint to these witnesses, musician Matt Nathanson stated that, while he does not mind getting money from royalties, the promotional effects of Internet radio was so great that he would prefer to give up some royalties to insure that Internet radio can become profitable and grow.  He stated that Internet digital delivery of music had changed the economics of the music industry, leveling the playing field for artists.  No longer are musicians required to be dependent on the record companies for their livelihoods.  Nathanson made the following points:

• Blogs, email, viral marketing, and on-line listening have allowed musicians to keep in touch with their fans, without the need for a record label promotions department
• The digital delivery of music ends the fight for shelf space in record stores, allows musicians to audition their music directly to the consumer (on their websites, MySpace pages or through Internet radio) so that they can build an audience on-line
• In this new system, promotion is the key way to make an audience to grow, and Internet radio is an important component of that promotion given its diverse programming
• Digital delivery makes sales and promotions opportunities more equal - by getting rid of scarcity you don't give limited power to a handful of broadcasters, nor are there necessarily a handful of major artists who get all the promotion through airplay
• The new system favors new artists and, if the growth of Internet radio is limited because of royalties, it will most hurt the small and developing artists who are promoted through the multiple channels of Internet radio

Kennedy of Pandora made the point that Internet radio democratizes radio, suggesting that if lower royalties are not agreed to, only broadcasters who can subsidize their operations through their broadcast operations would be left on the Internet.  Diversity would be lost.  Nathanson stated that such consolidation would be a "huge step back" for artists.  Senators on the panel remarked that Nathanson's view was a different perspective that they had not heard before (they obviously don't read this blog, as we remarked on some of these same points in posts including one here - mentioning that points made by one of SoundExchange's own witnesses at the hearings before the CRB talked about how new artists would probably benefit from promotion when more established artists might be more hurt by any substitutional effects of Internet radio).  After his testimony, there was much discussion of the real debate being between the new and old ways of doing things. 

In response, Simson of SoundExchange, trying to refute Nathanson's position, said that the benefits that he suggests were not available to the estates of artists who had died.  But Nathanson, in perhaps the most telling line of the hearing, said that the it wasn't Internet radio that put the artists in that position - it was the record companies and their contracts with the artists.  Nathanson concluded that Simson was proposing to right the wrongs of the past by crushing a new industry that had nothing to do with creating those wrongs in the first place.

Obviously, these differing perspectives - even among artists themselves - do not make settlement easy.  And there were other issues that were discussed at the hearing - stream-ripping, the broadcast performance royalty and the fear of "subsidizing" technologies that will be discussed in the third part of summary, to be posted in a few days.