[This post co-authored by FMC Policy Fellow Daniel Lieberman]

August in DC is traditionally a slow month. Election seasons are even slower. This year seems a little different, at least concerning an issue that could directly impact musicians. Within a span of six weeks, members of the House of Representatives on both sides of the aisle have introduced new legislation that aims to establish a more level playing field for radio royalties.

As we mentioned in our recap of the June 2012 “Future of Audio” hearing on the Hill, the laws governing how artists are compensated from radio plays are all over the map. Under current law, what a radio service like SiriusXm, Clear Channel, or Pandora pays depends on seemingly arbirtrary distinctions in how they deliver music to consumers. Then there’s the fact that over-the-air radio doesn’t compensate performers or labels at all (songwriters and publishers are paid through ASCAP SESAC or BMI).

It’s a given that technology will always outplace the law, especially where digital businesses are concerned. Keep in mind, however, that it’s already been more than a decade since the advent of internet radio. Because musicians rely, in part, on the royalties from companies that build businesses off their artistic expression, calibrating an appropriate rate system today is crucial to the future of music.

Before we look at what’s in these new bills, let’s quickly review the basics of artist compensation (or lack thereof) on radio — old-school or digital.

Pop quiz: who gets paid when Aretha Franklin’s “Respect” is played on over-the-air radio? Not the Queen of Soul or her label. Terrestrial radio enjoys a long-held exemption that allows them to not pay performing artists and sound copyright owners (usually the label, but sometimes the artist). Some parties do get paid, however, including the estate of Otis Redding (the songwriter) and his publisher.

Compare that to when “Respect” is broadcast digitally on platforms ranging from satellite radio to Pandora to any number of webcasters, and even terrestrial radio’s digital simulcasts. For these plays, Aretha and the label are paid via SoundExchange, the nonprofit tasked with collecting and distributing the digital public performance right, which was enacted back in 1996. It’s also important to note that digital broadcasters also pay the songwriters and publishers, again through ASCAP, SESAC and BMI.

So, when we’re talking about what’s fair, it’s important to remember the huge disparity in royalty obligations between over-the-air and digital broadcasters. We love the fact that artists are getting paid for internet radio plays, and think it is pretty ridiculous that terrestrial radio broadcasters are off the hook. But, that’s the law.

These bills aren’t expressly designed to bring balance to the force, or at least not between digital and terrestrial platforms. What they do attempt is to establish parity between digital broadcasters — for example, the rates Pandora pays vs. the rates SiriusXM pays (hint: less than Pandora).

Given the upcoming election and the basic nature of Congress, we are skeptical that either of these radio royalty bills will become law. But they may pop back up in another session, so let’s take a peek at what’s in them.

In July 20, Jason Chaffetz (R-UT) introduced the Internet Radio Fairness Act, which seeks to abolish the aforementioned distinctions across radio services set forth by § 801 of the Copyright Act. Chaffetz’s central proposition is that a digital radio platform like Pandora could more fairly compete with FM/AM radio giants if it paid less for the music it broadcasts over.

So, if digital radio companies pay less for the music they use, does that mean less money for artists? Pandora co-founder Tim Westergren says no. As he told Billboard, “Establishing fair rates will drive more innovation in legal digital music distribution and ensure artists are fairly compensated.”

While FMC admires Pandora and its historically warm relationship with artists — especially independents — we have real doubts that a law enabling Pandora and its digital radio peers to pay less for music will somehow translate into more compensation for musicians. After all, Pandora controls nearly 70 percent of the internet radio market — where, exactly, are these new entrants supposed to come from?

Perhaps Westergren sincerely believes that lower rates will herald the arrival of more web radio companies. But consider that the online broadcasting space is already fairly crowded, with Slacker, I Heart Radio, Last.fm, and new radio apps from Spotify and Rdio competing for listening hours (and advertising dollars). Perhaps Pandora, which hitched its wagon to Wall Street in 2011, is looking for ways to sustain the growth its investors have come to demand. That’s understandable, but we don’t think a company’s corporate prestige should be subsidized by the artists who deliver so much of the value.

On August 20th, Jerrold Nadler (D-NY) offered a different vision for fairer competition in radio with the oddly-coined Interim Fairness in Radio Starting Today Act (Interim FIRST). Instead of a royalty race to the bottom, Nadler’s solution begins by calling out the one platform that doesn’t compensate artists and copyright owners for their music — broadcast radio. Interm FIRST compels over-the-air broadcasters to compensate performing artists, albeit through a stopgap measure that involves raising the rates for their digital simulcasts to make up for what they aren’t paying for over-the-air plays. Nadler’s bill recognizes that until Congress establishes a full performance right for sound recordings, this type of band-aid is necessary. In some ways, the approach is similar to a private deal between Clear Channel and Big Machine Records, which we didn’t see as much of a solution, due to it only applying to just the one label and its roster. (There are other reasons, too; check out FMC Deputy Director Casey Rae’s recent Billboard Op-Ed for more.)

Overall, we’re pleased that Congress is paying attention to uneven royalty obligations across radio platforms. But we want to stress that a solution should not take cash out of musicians’ pockets based on the assumption that this will create a sudden influx of royalty-paying internet stations. We also believe that having a debate about radio parity is without addressing the age-old exemption that lets terrestrial radio skip out on paying performers.

FMC will continue to monitor these bills as they make their way through Congress.  In the meantime, we hope policymakers and stakeholders will consider closely the artists who make all forms of music radio possible.

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