Perform Act Is ‘Half the Banana’ but Good Start, Content Partisans Say

The content industry-backed Perform Act (S-2644, HR- 5361) would establish royalty parity across radio platforms, including Internet, cable and satellite but not over-the-air broadcast, which is regulated by the FCC. The satellite radio and CE industries hold sacrosanct 1992’s Audio Home Recording Act (AHRA) and its sweeping language covering “all digital recording… now or in the future,” as paraphrased by CEA Vp-Govt. Affairs Michael Petricone.

Fair use advocates bristle at the RIAA’s invocation of Internet piracy to describe the new device functions, which XM Chmn. Gary Parsons has compared to TiVo (CD April 27 p8). A DJ still chooses the music -- sometimes speaking over the beginning and end or overlapping consecutive songs -- and recorded songs disappear if a subscription expires, Petricone said: “This is not about P2P” and downloading Led Zeppelin’s catalog on demand. Satellite radio is clearly a “transmission” under AHRA, which makes no mention of end-user playback options, he said.

“We wish that the Act would go a little bit further” by better defining the “interactive service” provision in the Copyright Act, said Digital Media Assn. Gen. Counsel Lee Knife. The Internet industry has blamed that definition, which restricts user influence in song lineups with no guidelines for violations, for stymieing the industry’s growth. The Perform Act should also classify as “ephemeral,” and therefore unregulated, multiple copies of songs on servers needed to effectively stream over the Internet, he said. Internet radio currently pays higher royalties than satellite or cable, the major reason for the industry’s support for the bill.

The total exemption for over-the-air broadcast radio is out of line with international norms, a problem not fixed by the bill, intellectual property (IP) attorney Christian Castle said. Artists and especially songwriters are the biggest victims of “all the leakage in the system” through P2P sharing, and “the rest of the world has no question” that artists deserve compensation for any performance of their works, he said, predicting a “fight is coming” on the Hill over the exemption. It’s “very obvious to me” that XM’s new devices are distributing music, but tech firms can be forgiven for their ignorance, said the former gen. counsel for Snocap, the digital music registry. The XM suit was predictable given the legal takedown of MP3.com, a company he warned in advance of its getting sued, to no avail: “As soon as the thing went out, they were dead meat.”

The broadcast exemption is proof the bill is “singling out one service,” satellite radio, Petricone said: “This has nothing to do with equity.” That argument boils down to: “If you can’t get some equity, you can’t get any,” said Mitch Glazier, RIAA senior vp-govt. & industry relations. Castle, the most incensed by the absence of terrestrial radio from the bill’s provisions, backed Glazier: “Eventually we're going to get there and this is another step” toward full platform parity. “Ideally we'd like to see complete parity” but “largely we'll take what we can get” now, Knife added. The bill is “half the banana,” a preemptive measure against satellite recording becoming just as damaging as P2P, Glazier said. Consumers also paid Kazaa for premium service and figured the service was legal because of that, he added.

XM is just another example of “companies cutting corners” by not paying royalties for applicable services, Glazier said: “This is not a consumer problem.” He compared the new devices’ functionality to a service that allows “cherrypicking” the band performance alone from Saturday Night Live. “We're not the old Napster here,” Petricone responded: “Don’t say we're not paying.” Glazier pointed to customer reviews on the Circuit City website as evidence of the XM devices’ likely impact: “Wow, I'll never buy music again!” one reportedly said.

Satellite radio pays performance and device royalties, and its users spend more than average consumers on music, Petricone said CEA numbers showed. Let us get the business decisions wrong, then, Glazier countered, calling Petricone’s argument a justification for the govt. setting all CE devices at the same price and trusting consumer demand to make up any shortfalls.

The Glazier-Petricone rift opened a long debate over the scope and adequacy of AHRA, which isn’t mentioned in the labels’ suit against XM. Glazier called AHRA “a very silly act” and “one of the great red herrings of all time,” because it sought to prevent tape-to-tape “serial copying” as opposed to services like satellite radio recording and manipulation. They disagreed over whether XM sends an “alert” to its new devices when a song that fits user preferences is about to play. Regardless, it’s “pretty plain what is intended” by AHRA regarding digital radio in any form, Petricone said.

The Perform Act uses “fair market value” (FMV) to set royalty parity, a necessary evil, some speakers said. Compulsory licenses “try and mimic the marketplace” but are bound to fail, Glazier said, citing the view of a satellite royalty arbitrator who said the agreed-upon rate was certainly below market value. “In this situation there’s no market,” Petricone said, calling the major labels an oligopoly. “You can’t have it both ways,” Glazier responded: Demanding compulsory licensing then criticizing market conditions. The Internet industry supports FMV over its current “willing buyer, willing seller” formula for royalties, Knife said, but called FMV a “battle of economists” with no real logic.

Would a promise to use digital rights management (DRM) in radio services, in exchange for royalty-free Internet simulcasting within a terrestrial station’s 150-mile broadcast radius, be a good tradeoff? asked moderator Patrick Ross, PFF senior fellow. Panelists weren’t enthusiastic. “I don’t think it’s a fair trade,” Glazier said: “I mean, come on -- you should protect our music” regardless of incentives. Every managed service uses “signals” to protect transmissions, for example, for Nielsen ratings or satellite TV encryption, he added. DRM shouldn’t be forced unless the service allows some sort of repurposing of transmitted content, Knife said. A new concern is “stream-rippers” -- services that create MP3 or WAV files from streaming Internet or digital radio, Castle said. Some developers have created plugins for ripping programs that ping Gracenote for metadata, fully recreating distributed songs. “This is an insult to injury,” he said.