What is IRFA and why do we need “radio fairness” anyway?

The past weeks have seen a debate rage over competing bills working their way through the US Congress that would affect the royalty rates payable for streaming music. Both the Internet Radio Fairness Act, as sponsored by Representative Jason Chaffetz, and the Interim Fairness in Radio Starts Today (FIRST) Act, introduced by Representative Jerry Nadler, would seek to change the ways that internet radio royalties are calculated. The first bill has garnered a lot of press for being publicly supported by Pandora while the competing one is supported by musicFIRST.

For artists, the income streams affected by this legislation are from digital streaming public performance royalties. There are actually two: one for “non-interactive” services like Pandora, and one for interactive services, like Spotify. The difference is that “non-interactive” services offer users no ability to choose what is played (and thus are closer to terrestrial radio) while “interactive” streaming services offer what amounts to on-demand streaming.

Essentially, Pandora and IRFA supporters want to change the current law and replace it with a statutory rate. There are arguments that this would lower payments to artists. Nadler’s bill however, would seek to change the law to provide for a rate based on a “willing buyer / willing seller” model whose proponents say would raise royalties paid to artists.

Pandora’s argument is based in part on the fact that SiriusXM (another “non-interactive” service) pays a lower royalty and that this legislation would level the playing field. Besides potentially driving the royalty down, what is not being said is that the lower rate was instituted in 1998 to help nascent digital radio companies (like Sirius, XM—they were separate at the time—and MusicChoice) survive in the marketplace until they could all pay under a market-based (negotiated) standard. (A good history of this can be found in this piece on Slate.)

The basics here are that it was only in 1995 that artists were granted a “digital public performance right” for the first time. Note that it is only a digital right; there is still no public performance right for other transmissions of sound recordings in the US. This is the reason that terrestrial (AM/FM) radio does not pay the copyright owner of the master recording while they do pay the songwriter. (And note that the US is the only industrialized country that does not grant this right to owners of sound recordings.)

Confusing? Yes. The bottom line is that action is required to institute a public performance right for terrestrial radio and then to harmonize all of these royalties so that artists and record companies can be paid fairly and licensors don’t get sweetheart deals. It’s my hope that this debate will help bring about a rational solution that will end the years-long inequality in public performance royalty payments.